Opinion
No. 1-99-0152
November 15, 2002
TO: Honorable Thomas A. Higgins, Senior United States District Judge
REPORT AND RECOMMENDATION
This action was brought pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), by the named plaintiffs on behalf of themselves and the class they seek to represent, alleging that standardized form collection letters sent by the defendants, United Compucred Collections, Inc. ("Compucred") and A. B. Stineman, demanding "Immediate payment" and "Send payment today" were in violation of the FDCPA. The plaintiffs seek a declaratory judgment that the defendants violated the FDCPA, an award of statutory damages, and attorneys' fees.
The stated purpose of the FDCPA is to "eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692 (e). The legislative history reflects that the FDCPA was designed to eliminate unfair debt-collection practices, such as late-night telephone calls, false representations, and embarrassing communications. See Sen. Rep. No. 382, 95th Cong., 1st Sess. 2 (1977), reprinted in 1977 U.S.C.C.A.N 1695, 1696. To achieve its broad remedial purpose, the statute provides for actual damages, statutory damages, and attorney's fees. 15 U.S.C. § 1692k.
At issue in this case is section 1692e, which prohibits a debt collector from using any "false, deceptive or misleading representation or means in connection with the collection of any debt," and section 1692g(a), which provides that, in the initial communication to a consumer by a debt collector or within five days thereafter, the debt collector must send the consumer a written notice containing —
That prohibition, set forth in the first sentence of section 1692e is essentially reiterated in subsection 1692e(10), which prohibits the use of any "false representation or deceptive means to collect or attempt to collect any debt . . ."
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of the judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
Currently pending before the Court are the plaintiffs' motion for class certification (Docket Entry No. 25), the plaintiffs' motion for partial summary judgment (Docket Entry No. 43), and the defendants' motion for summary judgment (Docket Entry No. 39). By order entered May 23, 2000 (Docket Entry No. 35), the plaintiffs' motion for class certification was referred to the Magistrate Judge for consideration and for report and recommendation as to disposition, and, by order entered June 28, 2000 (Docket Entry No. 51), the defendants' motion for summary judgment and the plaintiffs' motion for partial summary judgment were referred to the Magistrate Judge for consideration and submission of proposed findings of fact and recommendation for disposition.
I. BACKGROUND
The plaintiffs received two debt collection form letters from the defendants in reference to two separate accounts with Travelers Indemnity of America ("Travelers"). The letters were identical in substantive content beginning with the Compucred letterhead and ending with the facsimile signature of A.B. Stineman over his name and title of "President." The first letter was dated June 29, 1999, and demanded payment of $47.56 owing on Travelers' Account No. 478748-0. Exhibit A to Docket Entry No. 1. The second letter was dated July 12, 1999, demanding payment of $59.40 owing on Travelers' Account No. 475447-0. Exhibit B to Docket Entry No. 1. The body of both letters stated as follows:
You are hereby put on notice that your delinquent account has been forwarded to us for collection by Travelers Indemnity of America.
This is an attempt to collect this claim. Any information obtained will be used for that purpose. Immediate payment of this claim will forestall further disposition of the matter. Unless you, within 30 days after receipt of this notice, dispute the validity of this claim, or any portion thereof, this claim will be assumed to be valid. If you, within 30 days after receipt of this notice, notify the undersigned that the claim, or any portion thereof, is disputed, we will obtain verification of the claim. Upon written request, we will provide you with the name and address of your original creditor, if different from the creditor listed above. This notice is furnished in compliance with Federal Law 95-109 (15 United States Code 1601 et seq.).
Send payment today. Direct payment to us as listed above. Be sure to enclose the top portion of this letter and your payment in the return envelope for proper identification.
If you feel this balance is not due, check one of the following and return to the above address:
A. ___ You had insurance with another company for the period listed above. PLEASE SEND PROOF OF COVERAGE. (copy of declaration or Insurance Card
B. __ Policy was paid in full. Please send proof of payment.
C. __ Other, explain__________________________________
Very truly yours,
[facsimile signature]
A. B. Stineman
President
The plaintiffs allege that the form letter violated the FDCPA in the following manner: (1) the demand for "Immediate payment" and "Send payment today" contradicts and overshadows the 30 day period within which the debtor may request validation under 15 U.S.C. § 1692g(a); (2) the letter fails to inform the debtor that "a copy of such verification or judgment will be mailed to the consumer by the debt collector" as required by 15 U.S.C. § 1692g(a)(4); (3) the letter fails to inform the consumer that a request for verification must be "in writing" as required by 15 U.S.C. § 1692g(a)(4); and (4) the letter uses a false or deceptive means to collect or attempt to collect a debt in violation of 15 U.S.C. § 1692e(10). See plaintiffs' complaint (Docket Entry No. 1).
The plaintiffs seek certification of a class consisting of all persons in Tennessee to whom letters in the form of Exhibits A or B to the complaint were sent in an attempt to collect a debt incurred for personal, family, or household purposes, which were not returned by the U.S. Post Office as undelivered, during the one year period prior to filing the complaint on September 17, 1999. Based on the use of the standardized form letters, the plaintiffs assert that the number of class members makes joinder impractical and that three common issues predominate over any issues involving only the named plaintiffs: (1) whether the demand for "Immediate payment" and "Send payment today" contradicts and overshadows the 30 days within which a debtor may request validation of the debt; (2) whether the form letter fails to inform the consumer that a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (3) whether the form letter informs the debtor that a request for verification must be in writing.
II. SUMMARY JUDGMENT
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." In order to prevail on a motion for summary judgment, the moving party must demonstrate that no genuine issue of material fact exists and that judgment as a matter of law should be granted in the moving party's favor. Smith v. Hudson, 600 F.2d 60, 63 (6th Cir. 1979).
In considering a motion for summary judgment, the court must view all facts and inferences to be drawn therefrom in the light most favorable to the non-moving party. Matshushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); SEC v. Blavin, 760 F.2d 706 (6th Cir. 1985). Although the moving party has the burden of showing that no genuine issue of material fact exists, the nonmoving party, however, may not merely rest on conclusory allegations contained in the complaint, but must respond with affirmative evidence supporting its claim and establishing the existence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Cloverdale Equipment Co. v. Simon Aerials, Inc., 869 F.2d 934, 937 (6th Cir. 1989).
Not every factual dispute between the parties will prevent summary judgment. The disputed facts must be material. They must be facts which, under the substantive law governing the issue, might affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The dispute must also be genuine. The facts must be such that, if they were proven at trial, a reasonable jury could return a verdict for the non-moving party. Id. The disputed issue does not have to be resolved conclusively in favor of the non-moving party, but that party is required to present some significant probative evidence that makes it necessary to resolve the parties' differing versions of the dispute at trial. First National Bank v. Cities Service Co., 391 U.S. 253, 288-89 (1968).
There is no dispute between the parties as to the underlying facts of this case, specifically, that the debt collection form letters received by the plaintiffs were sent by Compucred in an attempt to collect debts owed to its client, Travelers, and that, during the year prior to September 19, 1999, Compucred sent the same standardized letter on behalf of the same client to 164 people in Tennessee. However, both parties claim that they are entitled to summary judgment in their favor as a matter of law. Specifically, the defendant Stineman argues that he is entitled to summary judgment because his actions were taken within the scope and course of his duties as President of Compucred and that therefore he cannot be held personally liable for a violation of the FDCPA. Further, the defendants argue that they are entitled to summary judgment because the language in the form collection letter did not overshadow the validation notice required by the FDCPA, because the failure to specifically inform a consumer that a request for verification must be "in writing" does not constitute a violation of the FDCPA, and because the failure to specifically inform a consumer that a copy of such verification or judgment will be mailed to the consumer by the debt collector does not constitute a violation of FDCPA.
Similarly, the plaintiffs move for partial summary judgment on the following issues: (1) whether the demand "Send payment today" contradicts and overshadows the 30 day validation notice in violation of the FDCPA, (2) whether failing to inform the debtor that a "copy of such verification or judgment will be mailed to the consumer by the debt collector" is in violation of the FDCPA, and (3) whether failing to inform the consumer that a request for verification must be "in writing" is in violation of the FDCPA. In addition, the plaintiffs seek a declaratory judgment that the form letters that they received from the defendants are in violation of the FDCPA.
To the extent that the arguments in the plaintiffs' motion for partial summary judgment and the defendants' motion for summary judgment overlap on specific issues, they will be addressed together.
III. SUMMARY JUDGMENT MOTIONS
A. Claim Against Defendant A. B. Stineman
The defendants contend that defendant Stineman is specifically excluded as a "debt collector" under 15 U.S.C. § 1692a(6)(A), and, accordingly, cannot be held liable under the FDCPA. Docket Entry No. 39, at 7. Thus, the defendants contend that, as president of Compucred, defendant Stineman cannot "be held individually responsible for alleged wrongful conduct in which he participated solely as an employee of his employer and not in any individual capacity," that the plaintiffs' allegations are insufficient to permit the Court to disregard the corporate entity, and that therefore summary judgment for defendant Stineman is appropriate.
Section 1692a(6) defines a "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in a business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another . . . ." The defendants rely upon subsection (6)(A) in support of their contention that defendant Stineman cannot be personally liable under the FDCPA. Subsection (6)(A) specifically excludes "any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor." However, section 1692a(6)(A) is inapplicable to defendant Stineman, who is an officer or employee of the debt collection agency, Compucred, and not an employee or officer of the creditor, Travelers.
The defendants argue that their interpretation that subsection (6)(A) exempts defendant Stineman from liability is supported by the Federal Trade Commission Staff Commentary interpretation of section 803(6)(a) of the FDCPA, specifically:
FTC pronouncements regarding the FDCPA are of limited precedential value in light of the restricted scope of its power under the Act. The Sixth Circuit has held that FTC advisory opinions regarding the FDCPA are "entitled to deference only to the extent that their logic is persuasive." Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 398 (6th Cir. 1998); Pressley v. Capital Credit Collection Serv., Inc., 760 F.2d 922, 925 (9th Cir. 1985); Fox v. Citicorp Credit Servs., Inc., 15 F.3d 1507, 1513 n. 4 (9th Cir. 1994); Dutton v. Wolpoff Abramson, 5 F.3d 649, 654 (3rd Cir. 1993).
4. Specific exemptions from definition of debt collector.
(a) Creditor employees. Section 803(6)(A) [ 15 U.S.C. § 1692a(6)(A)] provides that "debt collector" does not include "any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor.
See FTC Official Staff Commentary, Section 803 — Definitions
Section 803(4) defines "creditor" as "any person who offers or extends credit creating a debt or to whom a debt is owed." However, the definition excludes a party who "receives an assignment of transfer of a debt in default solely for the purpose of facilitating collection of such debt for another."
1. General. The definition includes the party that actually extended credit or became the obligee on an account in the normal course of business, and excludes a party that was assigned a delinquent debt only for collection purposes.
The exemption includes a collection agency employee, who works for a creditor to collect in the creditor's name at the creditor's office under the creditor's supervision, because he has become a de facto employee.
The exemption includes a creditor's salaried attorney (or other) employee who collects debts on behalf of, and in the name of, that creditor.
Travelers, not Compucred, is the creditor in this case. Defendant Stineman is not an officer or employee of Travelers, does not send out collection letters with Travelers' letterhead, does not work in Travelers' office or under Travelers' supervision. Rather, the letter at issue used the letterhead of Compucred and the facsimile signature of defendant Stineman was as president of Compucred. There is no dispute that defendant Stineman is employed by Compucred and maintains his office at Compucred under the supervision of the owner of Compucred, Mike Prince.
Compucred cannot be considered a "creditor-controlled collector" pursuant to section 803(6)(B), which provides that a debt collector does not include a party collecting for another when they are both "related by common ownership or affiliated by corporate control . . ."
Under 15 U.S.C. § 1692a(6)(A), officers and employees of the original creditor, Travelers, are excluded from the definition of "debt collector," but officers and employees of the collection agency are included within the definition of "debt collector." Moreover, courts have held that officers and employees of the debt collecting agency may be jointly and severally liable with the agency. See Musso v. Seiders, 194 F.R.D. 43, 46-47 (D. Conn. 1999); Ditty v. Checkrite, Ltd., 973 F. Supp. 1230, 1336-37 (D. Utah 1997); Teng v. Metropolitan Retail Recovery, Inc., 851 F. Supp. 61, 67 (E.D.N.Y. 1994); West v. Costen, 558 F. Supp. 564, 587 (W.D. Va. 1983). Thus, under such an analysis, there is no issue of piercing the corporate veil or disregarding the corporate entity before defendant Stineman's liability can be considered. The circumstances in this case are different from those inPettit v. Retrieval Masters Creditors Bureau, Inc., 211 F.3d 1057 (7th Cir. 2000), in which the Court held that persons do not become "debt collectors" under the FDCPA simply by working for or owning stock in debt collection companies. Defendant Stineman's signature appeared on the letter at issue. There is at least a disputed issue of fact as to whether or not defendant Stineman is a "debt collector" under the Act. See Responses to the parties' respective statements of material undisputed facts. Docket Entry Nos. 48 and 52.
See FTC Official Staff Commentary, Appendix J, § 803, which provides in pertinent part: Section 803(6) defines "debt collector" as a party "who uses any instrumentality of interstate commerce or the mails *** collection of *** debts owed *** another."
1. Examples. The term includes:
Employees of a debt collection business, including a corporation, partnership, or other entity whose business is the collection of debts owned (sic) another.
The Seventh Circuit also held that the FDCPA does not provide for personal liability for shareholders or employees of debt collection companies, acting on behalf of those employees, except perhaps in limited instances where the corporate veil is pierced." 211 F.3d at 1059. See also White v. Goodman, 200 F.3d 1016, 1019 (7th Cir. 2000).
Section 1692a(6)(B)-(F) provides additional exemptions, none of which apply in this case.
Accordingly, the defendants are not entitled to summary judgment on this issue. B. Overshadowing Claim
Denial of summary judgment for defendant Stineman does not, however, translate into a grant of summary judgment for the plaintiffs on the liability of defendant Stineman because the issue of whether defendant Stineman was personally involved in the collection of the debt at issue revolves around disputed issues of fact. See Docket Entry Nos. 48 and 52.
The plaintiffs contend that the demand for "Immediate payment" and "Send payment today forces the debtor "eto choose between either abandoning his validation rights during the thirty day period and pay the alleged debt immediately or exercising his validation rights during the thirty day period and ignor[ing] defendants' demand for `Immediate payment' and "Send payment today."' Docket Entry No. 44, at 15. Accordingly, the plaintiffs argue that the letter clearly contradicts and overshadows the 30 day validation notice provision in violation of 15 U.S.C. § 1692g(a).
In contrast, the defendants argue that the letter neither specifically demands nor implies that payment or any other action must be taken within a period shorter than 30 days, but merely requests payment as a mechanism by which the debtor can avoid further action. Docket Entry No. 39, at 15. They contend that the phrase "immediate payment of this claim will forestall further disposition of this matter" is an option offered to the debtor, not a demand for payment and therefore summary judgment in the defendants' favor is appropriate on this issue.
The FDCPA requires that the debt collector inform the debtor of his right to request validation of the debt. Specifically, section 1692g(a) provides in pertinent part as follows:
(a) Notice of debt; contents
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —
There is no dispute that only one letter regarding each debt was sent by the defendants and that there is no issue as to whether a second communication containing the required information was sent within the five day period.
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector;
(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
The notice of the 30-day validation period must not only be stated, the debt collector must also "'effectively convey' the notice to the debtor."Smith v. Computer Credit, Inc., 167 F.3d 1052, 1054 (6th Cir. 1999), quoting Swanson v. Southern Oregon Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir. 1988). Accordingly, "to be effective, the notice must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency." Swanson, 869 F.2d at 1255; Ost v. Collection Bureau, Inc., 493 F. Supp. 701, 703 (D.N.D. 1980) ("communication must not be designed to evade the spirit of the notice statute, and mislead the debtor into disregarding the notice"). In determining whether a statement by the debt collector is misleading or deceptive, the Court must analyze the language from the point of view of the "least sophisticated consumer." Smith v. Transworld Sys., Inc., 953 F.2d 1025, 1028 (6th Cir. 1992), citing Jeter v. Credit Bureau, 760 F.2d 1168, 1172-75 (11th Cir. 1985). The defendants contend that this standard contains a reasonableness element," citing Gammon v. GC Servs. Ltd. P'ship, 27 F.3d 1254, 1257 (7th Cir. 1994). Docket Entry No. 40, at 11. However, the Court of Appeals for the Sixth Circuit has held that the "least sophisticated standard is `lower than simply examining whether particular language would deceive or mislead a reasonable debtor."' Smith v. Computer Credit, Inc., 167 F.3d at 1054, quoting Swanson, 869 F.2d at 1227. The Court finds persuasive the common sense analysis enunciated by the Seventh Circuit in grappling with the issue of what constitutes contradicting or overshadowing" in this context:
The statute does not say in so many words that the disclosures required by it must be made in a nonconfusing manner. But the courts, our own included, have held, plausibly enough, that it is implicit that the debt collector may not defeat the statute s purpose by making the required disclosures in a form or within a context in which they are unlikely to be understood by the unsophisticated debtors who are the particular objects of the statute's solitude.
Most of the cases put it this way: the implied duty to avoid confusing the unsophisticated consumer can be violated by contradicting or "overshadowing" the required notice. This sounds like two separate tests, one for a statement that is logically inconsistent with the required notice and the other for a statement that while it doesn't actually contradict the required notice obscures it, in much the same way that static or cross-talk can make a telephone communication hard to understand even though the message is not being contradicted in any way. The required notice might be "overshadowed" just because it was in smaller or fainter print than the demand for payment.
As with many legal formulas that get repeated from case to case without an effort at elaboration, "contradicting or overshadowing" is rather unilluminating — even though we hesitate to use the word in this context, confusing. The cases that find the statute violated generally involve neither logical inconsistencies (that is, denials of the consumer rights that the dunning letter is required to disclose) nor the kind of literal "overshadowing" involved in a fine-print, or faint-print, or confusing-typeface case. In the typical case, the letter both demands payment within thirty days and explains the consumer's right to demand verification within thirty days. These rights are not inconsistent, but by failing to explain how they fit together the letter confuses.
It would be better if the courts just said that the unsophisticated consumer is to be protected against confusion whatever form it takes. A contradiction is just one means of inducing confusion; "overshadowing" is just another; and the most common is a third, the failure to explain an apparent though not actual contradiction . . . .Barlett v. Heibl, 128 F.3d 497, 500 (7th Cir. 1997) (internal citations omitted).
The letter at issue sandwiches the 30-day validation notice between the instructions to the debtor that "[i]mmediate payment of this claim will forestall further disposition of the matter" and "[s] end payment today." Notably, the letter gives no explanation as to possible actions encompassed by the ominous sounding phrase "further disposition," but, having begun the letter with the warning that "[y]ou are hereby put on notice that your delinquent account has been forwarded to us for collection," the end of the notice validation paragraph provides that "[t]his notice is furnished in compliance with Federal Law 95-109 (15 United States Code 1601 et seq.)" (emphasis added). While the citation to federal law refers to the requirements of the FDCPA, layman would not necessarily understand the reference. Moreover, in this context, the reference could suggest to the least sophisticated debtor that the letter presages federal action, rather than informing the debtor of a requirement instituted for the consumer's protection. The least sophisticated debtor might well feel threatened and confused by the letter to the extent of concluding that disputing the debt would not stave off some unknown action.
Accordingly and because there are no material issues of disputed fact relating to this issue, see Docket Entry Nos. 48, 50, and 52, the defendants' motion for summary judgment should be denied and the plaintiffs' motion for partial summary judgment granted as a matter of law.
C. Omission of Statutorily Required Information
The plaintiffs allege that, in failing to inform the debtor that a request of verification must be "in writing," the defendants violated the FDCPA. The relevant portion of the letter at issue provides as follows:
Unless you, within 30 days after receipt of this notice, dispute the validity of this claim, or any portion thereof this claim will be assumed to be valid. If you, within 30 days after receipt of this notice, notify the undersigned that the claim or any portion thereof, is disputed, we will obtain verification of the claim. Upon written request, we will provide you with the name and address of your original creditor, if different from the creditor listed above.
The defendants argue that, because 15 U.S.C. § 1692g(a)(3) does not specifically require that the debt collector inform the debtor that he must dispute the validity of the debt in writing, summary judgment in their favor is appropriate on this issue.
Although the defendants correctly note the subsection g(a)(3) requires only that a debtor be informed of the 30 day period in which to dispute the validity of the debt, without reference to the requirement that the dispute must be reduced to writing, when read in conjunction with the accompanying subsections, it is clear that the gravamen of subsection g(a)(3) is the limitation period, not the format of the dispute, and that subsections g(a)(4) and g(a)(5) supply the format and the actions that may be invoked if the debtor complies within the limitation period. See also 15 U.S.C. § 1692g(b). Although it is theoretically possible for the debtor to dispute the validity of the debt in some other format, it is only a written dispute or request that impels the debt collector to respond in the statutorily required manner. Clearly, if a debt collector's action is only invoked by the written submission from the debtor, the debtor must necessarily be informed of that requirement.
Moreover, subsection g(a)(4) clearly requires that the debtor be informed that, if he notifies the debt collector "in writing" of a dispute, the debt collector will obtain and mail to the debtor verification of the debt or a copy of the judgment. The defendants, however, did not inform the debtor that, in order to obtain verification, the notice must be in writing. Whether this failure to inform the debtor of the writing requirement is a violation of section 1692g(a)(3) is not unequivocally clear, but it is clearly a violation of section 1692g(a)(4). Further, in omitting the writing requirement relating to verification of the claim, but including the necessity of a written request to obtain the name of the original creditor, the defendants imply by omission that there is no writing requirement attached to verifying or disputing the claim. Thus this omission serves to confuse the least sophisticated debtor and fails to effectively convey the validation notice.
The defendants rely upon the case of Smith v. Transworld Svs., Inc., 953 F.2d 1025 (6th Cir. 1992), as authority for the proposition that "[t]he FDCPA does not specifically state that the debt collector must inform the consumer that the request for verification be in writing and this Circuit has upheld as much." Docket Entry No. 40, at 16. However, the issue in Smith was not whether the debtor must be informed that a dispute must be in writing, but whether the following language adequately informed the unsophisticated consumer of his right to dispute any portion of the debt:
All portions of this claim shall be assumed valid unless disputed within thirty days of receiving this notice. If disputed in writing, verification of the debt will be provided to you.Id. at 1028 (emphasis added). Although the Sixth Circuit found that the language at issue "adequately informs the reader that the debt must be disputed, if at all, within thirty days — it is implicit that the claim can be wholly, or partially, challenged," id. at 1029, the Court did not consider the question at issue in this case. Moreover, the language in the notice in that case and approved by the Court included the information omitted in the defendants' letter, i.e., that, to obtain verification of the debt, the consumer's dispute must be in writing.
Accordingly, the Court recommends that summary judgment be granted to the plaintiffs and denied to the defendants on this issue.
Finally, the plaintiffs allege that the failure to inform the debtor that, upon written request, the debt collector would mail them a copy of the verification of the debt or judgment violates the FDCPA. Section 1692g(a)(4) requires that the debtor be informed that "if the debt . . . is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector." Section 1692g(b) also provides as follows:
If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of the judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.15 U.S.C. § 1692g(b) (emphasis added).
The defendants contend that they are entitled to summary judgment on this issue because the failure to inform the debtor that, on written request, they will mail a "copy of such verification or judgment" does not violate the FDCPA. The defendants do not provide any support for this contention, but cite Beeman v. Lacy, Katzen, Ryen Mittleman, 892 F. Supp. 405, 409 (N.D.N.Y. 1995), as support for the proposition that "[r]equiring the debt collector to inform the consumer that it will obtain and send a copy of a nonexistent judgment serves no salutary . . . purpose." This holding does not, however, address the issue of whether a debt collector is specifically required to inform the debtor that, if a debt is properly disputed, a copy of the judgment or verification of the debt will be obtained by the debt collector and mailed to the debtor by the debt collector. It does not appear that the Sixth Circuit has specifically considered this issue, but the following dicta in Beeman is persuasive:
Section 1692g(a)(4)'s use of the disjunctive "ore" between "verification of the debt" and "copy of the judgment" leads to the conclusion that the debt collector is free to choose the appropriate form of verification. If a judgment exists, the debt collector should promise to provide it. If a judgment does not exist, the debt collector must promise to provide alternative verification of the debt.Id. at 410 (emphasis added). The clear import of requiring the debt collector to "promise to provide" is that the debtor must be informed that, once verification is obtained by the debt collector, the debtor will receive a copy of it.
Accordingly, summary judgment for the defendants on this issue should be denied, and summary judgment granted to the plaintiffs.
Finally, the plaintiffs assert that the defendants have violated 15 U.S.C. § 1692e(10), which prohibits the "use of any false representation or deceptive means to collect or attempt to collect any debt . . . ." This claim, involving the issue of deception, is not susceptible to summary judgment and should be decided by a jury. SeeDutton v. Wolpoff Abramson, 5 F.3d 649 (3rd Cir. 1993).
IV. MOTION FOR CLASS CERTIFICATION
The plaintiffs seek to certify a class pursuant to Rule 23(a) and Rule 23(b)(2) and (3), which provide as follows:
(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous the joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and, in addition:
* * *
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy . . . .
The burden is on the plaintiffs, seeking certification of a class, to establish the right to do so. Eisen v. Carlisle Jacquelin, 417 U.S. 156, 163, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974); Senter v. General Motors Corp., 532 F.2d 511 (6th Cir.), cert. denied, 429 U.S. 870, 97 S.Ct. 182, 50 L.Ed.2d 150 (1976). In this case, the plaintiffs propose a class of all Tennessee residents who received from the defendants, collecting on behalf of Travelers Indemnity, the form letter sent to the plaintiffs as attached to their complaint, during the time period between September 19, 1998, and September 19, 1999. Specifically, the plaintiffs define the proposed class as follows:
All persons in Tennessee to whom letters in the form of Exhibits A or B [to the plaintiffs' complaint] were sent in an attempt to collect debt incurred for personal, family or household purposes, which were not returned by the U.S. Post Office as undelivered during the one year period prior to the date of filing of the complaint in this action.
Docket Entry No. 25, at 1.
In opposition to class certification, the defendants submitted a two page memorandum raising three grounds: (1) that the plaintiffs must exclude those who have filed for Bankruptcy protection, but did not list the claim as an asset or, if they listed the claim as an asset, they have not been discharged; (2) that, because the plaintiffs seek only statutory damages, the "class method is inferior to individual actions" in this case; and (3) that class certification is premature because the issues of liability and damages have not yet been addressed. Docket Entry No. 34.
The defendants' first objection is peripherally related to the Rule 23 analysis and will be addressed infra in the context of the discussion of numerosity. Although the defendants argue that the amount of statutory damages available to the class has not yet been determined, the defendants cite no authority for denial of class certification or deferral of the issue of class certification on this ground. As the plaintiffs point out, each class member would be informed of his rights as a class member, the ability to be excluded from the class, and the binding effect of the litigation if not excluded pursuant to Rule 23(c)(2). See Docket Entry No. 38. Accordingly, any class member with a claim for actual damages may opt-out of the class to pursue his own action.
Section 1692k(a)(2)(B) provides that, in class actions, statutory damages may be awarded in an amount not to exceed the amount of the lesser of $500,000.00 or one per cent of the net worth of the debt collector.
The defendants imply that the potential class members may not be capable of making informed decisions to opt out of the class and pursue individual actions. Specifically, the defendants contend as follows:
Third, because the issues of liability and damages have not yet been addressed, the decision of whether or not it is prudent to proceed as a class action cannot adequatly (sic) be addressed at this time. Granting class certification at this time would trigger the sending of notices to the purported class members and expect them to make an informed decision on whether to opt in or out of the class without knowing what they reasonably might expect to receive from this litigation. Plaintiffs counsel has made it quite clear that this case should be handled on the "least sophisticated consumer" standard and therefore this standard must be applied to the class action determination. That is if the "least sophisticated consumer" Plaintiff cannot make a reasonable decision on whether to opt in or out of a class action then it is not the preferable method of proceeding at that point. Later, after a determination of liability (if any) and the amount of statutory damages available then each purported class member may be able to make an informed decision.
In the instant case there is a very real possibility that there may be a finding of no liability and even if liability is found there is a very real possibility that the amount of statutory damages will be nominal. Given that scenario granting class certification and sending out notice to class members to create the impression that they may receive something of value in the future is more false and deceptive than anything that this Defendant is alleged to have committed.
Docket Entry No. 34, at 1-2.
The defendants cite no authority, nor is the Court aware of any, that supports the proposition that a Rule 23 determination is to be based on the ability of the "least sophisticated consumers" to make reasonable determinations of their own best interests in deciding to remain a class member or to pursue the matter in a separate action. The defendants also cite no authority, nor is the Court aware of any, that would support their position that class status should be determined after, rather than before, a determination of liability and/or damages.
Before certifying a class, the Court must conduct a "rigorous analysis" into whether the prerequisites of Rule 23 are met. General Tel. Co. v. Falcon of the Southwest, 457 U.S. 147, 161, 102 S.Ct. 2364, 2372, 72 L.Ed.2d 740 (1982). The Court's broad discretion in deciding to certify a class must be exercised within the framework of Rule 23. All four prerequisites of Rule 23(a) must be met before a class can be certified. Once these criteria have been satisfied, the party seeking certification must also demonstrate that it falls within at least one of the sub-categories of Rule 23(b), i.e., that separate actions would create a risk of inconsistent adjudications, that injunctive or declaratory relief is appropriate with respect to the class as a whole, or that common questions predominate over the individual questions and a class action is superior to other methods of adjudication.
The plaintiffs' allegations on the merits of the case are accepted as true in determining whether class certification is appropriate, Eisen, 417 U.S. 177-178 (Rule 23 does not give a court "authority to conduct a preliminary inquiry into the merits of a suit to determine whether it may be maintained as a class action"), but a class action may not be maintained merely because it is so designated by the plaintiffs. Cash v. Swifton Land Corp., 434 F.2d 569, 571 (6th Cir. 1970). The party seeking class certification bears the burden of proof and there must be a sufficient basis of facts to show that each requirement of Rule 23 is met. In re American Med. Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996);Weathers v. Peters Realty Corp., 499 F.2d 1197, 1200 (6th Cir. 1974). Accordingly, "it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question." Falcon 457 U.S. at 160.
But see Coopers Lybrand v. Livesay, 437 U.S. 463, 469, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351 (1978) (the Court's determination of class certification may involve some considerations related to the factual and legal issues of the plaintiff's claims).
A. Numerosity
Rule 23(a)(1) permits maintenance of a class action only "when the class is so numerous that joinder of all class members is impracticable." The proposed class, as defined by the plaintiffs, includes all persons in Tennessee to whom letters were sent in the form of exhibits A or B attached to the plaintiffs' complaint in an attempt to collect a debt incurred for personal, family, or household, purposes, which were not returned by the U.S. Post Office as undelivered, during the one year period prior to the date of filing of the complaint. According to the plaintiffs, 164 such debt collections notices were sent to individuals with Tennessee addresses during the pertinent time period.
The defendants do not dispute the number of individuals who received the form letters, but argue that, because the plaintiffs fail to detail how individuals who have filed for Bankruptcy protection without listing the potential claim as an asset in the Bankruptcy estate or who have listed the potential claim as an asset but have not yet been discharged will be excluded from the class or "their class" transferred to the Bankruptcy estate, class certification is inappropriate. Docket Entry No. 34.
The plaintiffs point out, however, that knowledge of any members of the proposed class who have filed for Bankruptcy protection is more likely to be within the defendants' control as creditors of a debt that may have been discharged in Bankruptcy proceedings and, accordingly, the defendants may seek that recovery by any such class member be paid to the Bankruptcy estate. The defendants do not indicate whether any class members have, in fact, filed for Bankruptcy protection. In any class action, there is always a possibility that potential class members may file for Bankruptcy protection, and the Court acknowledges that the possibility may increase if the class consists of debtors. However, the defendants have not cited, nor is the Court aware of any cases in which this issue has been addressed in the context of the propriety of class certification.
The Court finds that the plaintiffs have met the numerosity requirement. See Afro American Patrolmens League v. Duck, 503 F.2d 294 (6th Cir. 1974); Van Vels v. Premier Athletic Center of Plainfield, Inc., 182 F.R.D. 500, 507 (W.D. Mich. 1998).
B. Commonality
Rule 23(a)(2) requires that there be questions of fact or law common to the class. The plaintiffs contend that there are three issues common to the proposed class: (1) whether the demand for "Immediate payment" and "Send payment today" contained in the form letter contradicts and overshadows the 30 days within which the consumer may request validation of the debt; (2) whether the form letter fails to inform the consumer that "a copy of such verification or judgment will be mailed to the consumer by the debt collector;" and (3) whether the letter fails to inform the consumer that a request for verification must be "in writing."
The Rule 23(a)(2) standard for commonality is "qualitative rather than quantitative — that is, there need be only a single issue common to all members of the class." 1 Herbert Newburg Alba Conte, Newburg on Class Actions § 3.10 (3d ed. 1992). In addressing the prerequisites of Rule 23(a), the United States Supreme Court has noted as follows:
The commonality and typicality requirements of Rule 23(a) tend to merge. Both serve as guideposts for determining whether under the particular circumstances maintenance of a class action is economical and whether the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence. Those requirements therefore also tend to merge with the adequacy-of-representation requirement, although the latter requirement also raises concerns about the competency of class counsel and conflicts of interest.Falcon, 457 U.S. at 157 n. 13, 102 S.Ct. at 2370 n. 13.
Because all of the proposed class members received the form letter at issue, the allegations in the complaint are common to all proposed class members. See Avila v. Van Ru Credit Corp., 1995 WL 41425, * 11 (N.D. Ill. Jan. 31, 1995); Colbert v. Trans Union Corp., 1995 WL 20821, * 2 (E.D. Pa. Jan. 12, 1995). This case involves the standardized conduct of the defendants and the claims of the individual class members do not have to match precisely. Adames v. Mitsubishi Bank, Ltd., 133 F.R.D. 82, 90 (E.D.N.Y. 1989). When the questions of law involve a standardized conduct of the defendants toward members of the proposed class, a common nucleus of operative facts is typically presented and the commonality requirement of Rule 23(a)(2) is usually met. Franklin v. City of Chicago, 102 F.R.D. 944, 949 (N.D. Ill. 1984).
The Court finds that common questions of law and fact are presented and that, therefore, the plaintiffs have met the commonality requirement of Rule 23(a)(2).
C. Typicality
Rule 23(a)(3) requires that the "claims or defenses of the representative parties [be] typical of the claims or defenses of the class." A plaintiff's claim is typical if it "arises from the same event or course of conduct that gives rise to the claims of other class members and is based on the same legal theory." Paskel v. Heckler, 99 F.R.D. 80, 84 (E.D. Pa. 1983).
In this case, the plaintiffs' claims arise from the same course of conduct, i.e., the mailing of at least one of the two form notices at issue. When the same alleged "unlawful conduct was directed at both the named plaintiff and the class to be represented, the typicality requirement is usually met irrespective of varying fact patterns which underlie individual claims." 1 Newburg, supra, at 3.13. Although the debt claimed in the individual notices may vary, individual damages are not likely to vary greatly among class members. In almost every class action, damages will vary for each member and the existence of individual issues does not bar class certification. See Simon v. Westinghouse Elec. Corp., 73 F.R.D. 480, 486 (E.D. Pa. 1977). In addition, the FDCPA provides for class-wide awards, obviating the need for calculating individual damages. 15 U.S.C. § 1692k(a)(2)(B).
Accordingly, the Court finds that the plaintiffs have satisfied the typicality requirement.
D. Adequacy of Representation
There are two criteria for determining whether the representation of the class will be adequate: (1) the representative(s) must have common interests with the unnamed members of the class, and (2) it must appear that the representatives will vigorously prosecute the interests of the class through qualified counsel. Senter, 532 F.2d at 524-25. The plaintiffs, as debtors, having received debt collection notices that allegedly violated the FDCPA, have common interests with those of the class on all issues asserted in this case.
The Rule 23(a)(4) requirement that "the representative parties will fairly and adequately protect the interests of the class" is satisfied "when each class member's claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant's liability." Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir. 1993), citing In re Drexel Burnham Lambert Group, 960 F.2d 285, 291 (2d Cir. 1992), cert. dismissed, 506 U.S. 1088, 113 S.Ct. 122, L.Ed.2d 497 (1993).
The second criterion is also met inasmuch as the affidavits of plaintiffs' counsel indicate that they are well qualified to undertake the representation of the plaintiff class. In addition to competent local counsel, the plaintiffs are represented by O. Randolph Bragg, a member of the bars of the United States Supreme Court, the Sixth Circuit Court of Appeals, and numerous other United States courts of appeal and district courts, whose practice since the early 1970s has focused on consumer representation. He has represented plaintiffs in numerous class action and consumer lawsuits, including Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997), Dutton v. Wolpoff Abramson, 5 F.3d 649 (3rd Cir. 1993), and Van Vels v. Premier Athletic Center of Plainfield, Inc. 182 F.R.D. 500 (W.D. Mich. 1998), cited herein, and numerous other consumer cases in United States courts of appeals and district courts. See Docket Entry No. 14; Docket Entry No. 28 (Exhibit 3 to Docket Entry No. 25).
The Court notes that, in April 2000, the plaintiffs moved for an extension of time in which to file dispositive motions because Mr. Bragg underwent a kidney transplant operation. Mr. Bragg remains counsel of record and, accordingly, the Court presumes that his health issues will not affect his active representation of the plaintiffs in this action.
E. Requirements of Rule 23(b)
Once the plaintiffs have shown that they have met the requirements of Rule 23(a), they must then show that they met at least one of the following additional requirements of Rule 23(b):
(1) that separate actions would create a risk of inconsistent adjudications; (2) that injunctive or declaratory relief is sought; or (3) that common questions of law or fact predominate over individual questions. It is the plaintiffs' position that the second and third requirements of Rule 23(b) have been met.
Rule 23(b)(3) provides that a class should be certified when "the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy."
When there is an "essential common factual link between all class members and the defendant for which the law provides a remedy," questions of law or fact common to the class exist. Halverson v. Convenient Food Mart, Inc., 69 F.R.D. 331, 334 (N.D. Ill. 1974). Specifically, cases addressing the legality of standardized documents and practices often result in the predomination of common questions of law or fact and are, therefore, generally appropriate for class certification. See Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1164 (7th Cir. 1974) (class action was appropriate under the Truth in Lending Act when the defendant used a standardized form installment retail contract). Further, plaintiff classes have been certified in several cases involving claims under the FDCPA based upon a defendant's use of standardized forms. See, e.g., Avila, 1995 WL 41424; Colbert, 1995 WL 20821; Carr v. Trans Union Corp., 1995 WL 20865 (E.D. Pa. Jan. 12, 1995).
In this case, it is the use of standardized debt collection letters that has given rise to the plaintiffs' claims. The questions of law and fact involved in this case relate to the use of the debt collection letters admittedly mailed by the defendants to the proposed class members. The common questions of law and fact relating to the contents and mailing of these letters predominate over any individual issues. Accordingly, the Court finds that the plaintiffs have satisfied this prong of Rule 23(b)(3).
In addition to the predomination of common questions of law or fact, a class action must be the superior method to resolve the controversy to fully satisfy the requirements of Rule 23(b)(3). Class actions are the superior method for resolving controversies when the main objectives of Rule 23 are served, i.e., the efficient resolution of the claims of many individuals in a single action, as well as the elimination of repetitious litigation and possibly inconsistent adjudications. See Califano v. Yamasaki, 442 U.S. 682, 700-01, 99 S.Ct. 2545, 2557-58, 61 L.Ed.2d 176 (1979). The Court is required to determine the best available method for resolving the controversy in keeping with "judicial integrity, convenience and economy." Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149, 172 (W.D. Mo. 1977). It is appropriate to consider the "inability of the poor or uninformed to enforce their rights and the improbability that large numbers of class members would possess the initiative to litigate individually." Haynes, 503 F.2d at 1165. "Class actions are often the most suitable method for resolving suits to enforce compliance with consumer protection laws because the awards in an individual case are usually too small to encourage the lone consumer to file suit." Colbert, 1995 WL 20821, *3.
In this case, the proposed plaintiff class is comprised of consumers who are not likely to bring suit on their own and the maximum individual recovery is not likely to entice many attorneys to undertake individual lawsuits. For these reasons, the Court finds that a class action is the superior method for resolving this controversy.
In addition, the plaintiffs seek a declaratory judgment that the defendants' use of the standardized form letter is violative of the FDCPA, and the Court finds that certification of a class is also appropriate under Rule 23(b)(2). See Gammon v. GC Serv. Ltd. P'ship, 162 F.R.D. 313, 319 (N.D. Ill. 1995) (upon remand from 7th Circuit).
Injunctive relief is not available under the Act. See Gammon, 162 F.R.D. at 319.
Therefore, the plaintiffs have met each of prerequisites in Rule 23(a) and have satisfied both prongs of Rule 23(b)(2) and (3), and a plaintiff class should be certified.
The differences between a Rule 23(b)(2) and a Rule 23(b)(3) class must be addressed. Rule 23(b)(3) class members must be given notice of the class and an opportunity to opt out. That procedure is unnecessary in a Rule 23(b)(2) class, which is considered a "mandatory" class. See Coleman v. General Motors Acceptance Corp., 296 F.3d 443, 447 (6th Cir. 2002). InColeman, the Sixth Circuit noted that money damages are recoverable by a Rule 23(b)(2) class in certain situations," but were not recoverable in that case brought under the Equal Credit Opportunity Act. Id. at 447. The Court cautioned that "close scrutiny is necessary if money damages are to be included in any mandatory class to protect the individual interests at stake." Id. at 448. Although this case presents more homogeneity among the plaintiff class than did Coleman, notice and an opportunity to opt out should be provided to each of the class members in this case in accord with a Rule 23(b)(3) class.
V. RECOMMENDATION
Based on the foregoing, the Magistrate Judge respectfully recommends the following: (1) That the defendants' motion for summary judgment (Docket Entry No. 39) be DENIED in full.
(2) That the plaintiffs' motion for partial summary judgment (Docket Entry No. 43) be GRANTED on the plaintiffs' claim that defendant Compucred violated the FDCPA by failing to comply with 15 U.S.C. § 1692g(a)(3) and 1692g(a)(4).
(3) That the plaintiffs' motion for partial summary judgment (Docket Entry No. 43) be DENIED on the plaintiffs' claim that the defendants violated 15 U.S.C. § 1692e(10).
(4) That the plaintiffs' motion for class certification (Docket Entry No. 25) be GRANTED, and the following class be certified under Rule 23(b)(3) of the Federal Rules of Civil Procedure:
All persons in Tennessee to whom letters in the form of Exhibits A and B attached to the plaintiffs' complaint were sent in an attempt to collect a debt incurred for personal, family or household purposes, which were not returned by the United States Post Office, during the period September 19, 1998, and September 19, 1999.
Any objections to this Report and Recommendation must be filed with the Clerk of Court within ten (10) days of receipt of this notice, and must state with particularity the specific portions of this Report Recommendation to which objection is made. Failure to file written objections within the specified time can be deemed a waiver of the right to appeal the District Court's order. See Thomas v. Am, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).