Novak v. Monarch Recovery Management, Inc.

Filing 41

MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 12/13/2016. Mailed notice. (mgh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

Christine Novak

)
)
)
)
)
) Case No. 15 C 2448
)
)
)
)
)

Plaintiff,

v.

Monarch Recovery Management,
Defendant.

MEMORANDUM OPINION AND ORDER
In this action, plaintiff asserts that defendant violated the
Fair Debt Collection Practices Act (“FDCPA”) by sending her a
dunning letter after she had filed for Chapter 13 bankruptcy.
Before me are cross-motions for summary judgment. For the reasons
that follow, defendant’s motion is granted and plaintiff’s motion
is denied.
I.
The facts giving rise to the alleged violation are undisputed
except where noted. In or around January of 2013, plaintiff opened
a credit card with Credit One Bank and incurred a consumer debt.
MSW Capital, LLC later acquired that debt.
2014,

MSW

Management,

placed
Inc.,

the
for

account

with

collection.

1

In early August of

defendant,
Shortly

Monarch

thereafter,

Recovery
Monarch

submitted the account to the credit reporting agency Experian for
a “bankruptcy scrub,” which was completed on August 12, 2014.
Monarch sent plaintiff collection letters on August 13, 2014,
and October 8, 2014, and it also attempted to reach plaintiff by
phone but was unsuccessful. Then, on November 20, 2014, plaintiff
filed

a

Chapter

13

voluntary

petition

for

bankruptcy.

Neither

Monarch nor MSW was included on the bankruptcy service list, nor
did either receive notice of the creditors meeting in plaintiff’s
bankruptcy case.1
Monarch sent plaintiff a third collection letter on January
5, 2015. As of that date, Monarch had not received notice of
petitioner’s bankruptcy petition.2 On January 12, 2015, Monarch

1

Plaintiff does not dispute these facts but asserts in her L.R.
56.1(b) response that the facts are “immaterial.” As courts in
this district have observed on multiple occasions, L.R. 56.1
statements are not the appropriate platform for raising legal
arguments. See, e.g., Grabianski v. Bally Total Fitness Holding
Corp., 169 F. Suppp. 3d 785, 788 (N.D. Ill. 2015) (“L.R. 56.1
submissions are not the proper venue for presenting legal
arguments or for developing whatever ‘spin’ the parties wish to
place on the facts.”); Portis v. City of Chicago, 510 F. Supp. 2d
461, 464 (N.D. Ill. 2007) (“[w]hether the fact asserted is
material...is argument to be presented in defendant’s brief, but
not in the L.R. 56.1(b) response, where the only question is
whether the fact asserted is contested.”).
2
Monarch supports this assertion with the testimony of its
president, Diane Mazzacano. Plaintiff points to no evidence to
controvert Mazzacano’s testimony but purports to dispute the
assertion with the argument that “if the procedures that Monarch
identified in discovery and during the deposition worked, Monarch
would have received notice of Plaintiff’s bankruptcy before
sending the January 5, 2015 letter.” Pl.’s L.R. 56.1(b) Stmt. at
¶ 28. This response is inappropriate under L.R. 56.1 for reasons
explained
above.
Becuase
plaintiff
identifies
no
evidence
2

closed

plaintiff’s

collection

account

at

MSW’s

direction.

Defendant received notice of plaintiff’s bankruptcy for the first
time in a letter from plaintiff’s counsel dated January 26, 2015.
This lawsuit followed.
I.
Summary

judgment

is

appropriate

when

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 that the moving party is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). I
must construe all facts in favor of the nonmoving party, and may
grant summary judgment only “if, on the record as a whole, a
rational trier of fact could not find for the non-moving party.”
Turner v. J.V.D.B. & Associates, 330 F.3d 991, 995 (7th Cir. 2003)
Plaintiff’s

four-count

complaint

alleges

violations

of

15

U.S.C. §§1692e(2), 1692e(10), 1692f, and 1692c(a)(2) of the FDCPA.
Section 1692(e), which plaintiff asserts in Counts I and II, makes
it unlawful for debt collectors to use false representations or
means in connection with the collection of a debt. “A demand for
immediate payment while a debtor is in bankruptcy (or after the
debt’s discharge) is ‘false’ in the sense that it asserts that
money is due, although, because of the automatic stay (11 U.S.C. §
suggesting that Monarch did, in fact, have notice of her
bankruptcy before it sent the January 5, 2015, letter, defendant’s
asserted fact is deemed admitted.
3

362) or the discharge injunction (11 U.S.C. § 524), it is not.”
Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004). This
section creates a strict liability rule, meaning that there is no
scienter requirement. (“Debt collectors may not make false claims,
period.”). Id. at 730. Nevertheless, a debt collector who violates
§ 1692e, or any other substantive portion of the FDCPA, can escape
liability if it establishes “by a preponderance of the evidence
that (1) the violation was unintentional, resulting from a ‘bona
fide

error,’

and

(2)

that

error

occurred

not-withstanding

the

maintenance of procedures reasonably adapted to avoid any such
error.”

Turner,

330

F.3d

at

995-96

(7th

Cir.

2003)

(internal

quotation marks and citation omitted); 15 U.S.C. § 1692k(c).3
The central issue in the parties’ cross-motions is whether
the undisputed facts establish Monarch’s bona fide error defense.
For the purposes of examining this issue, I assume that Monarch’s
conduct violates the asserted provisions of the FDCPA.
As
defense

noted

above,

asks

whether

unintentional.

the

first

prong

defendant’s

Plaintiff

does

not

3

of

the

violation
dispute

of

that

bona
the

fide

error

FDCPA

Monarch

had

was
no

In some cases, the Seventh Circuit has further broken down the
two prongs articulated in Turner into three prongs, severing the
question of the defendant’s intent from the question of whether
the violation resulted from a bona fide error. See, e.g., Kort v.
Diversified Collection Services, Inc., 394 F.3d 530, 537 (7th Cir.
2005) (citing Jenkins v. Heintz, 124 F.3d 824, 834 (7th Cir.
1997)). Nothing in the parties’ submissions in this case, however,
suggests that the outcome of their motions would be different
under a three-prong analysis.
4

knowledge of plaintiff’s bankruptcy prior to sending the January
5,

2015,

letter,

and

she

articulates

no

theory

under

which

Monarch’s presumed violation of § 1692e can be deemed intentional
under those circumstances.

Cf. Turner, 330 F.3d at 996 (“proof

that [the debt collector] was unaware of the bankruptcy would be a
logical

first

step”

unintentional).
fide

error

whether

establishing

that

its

violation

was

Indeed, plaintiff’s response to Monarch’s bona

defense

the

collection

to

focuses

procedures
letters

exclusively

Monarch

to

had

consumers

in

in

on

the

place

second

to

bankruptcy

prong:

avoid

were

sending

reasonably

adapted to avoiding the error that led to the violation.
Monarch’s
affidavit

President,

and

at

her

procedures

for

collecting

from

affidavit,

Mazzacano

advantageous”
bankruptcy

debt

debt

with

involved

explains
owners

in

that
to

collectors,

testified

deposition

compliance

consumers

for

Mazzacano,

subsequent

ensuring

with

Diane

the
a

ban

on

In

her

is

not

bankruptcy.
“it

accounts

that

“as

that

a

an

Monarch’s

FDCPA’s

generally,

place
and

about

in

are

result,

in
the

practice for all clients, including MSW, is not to place accounts
with

Monarch

for

collection

where

the

consumer

has

filed

bankruptcy.” Mazzacano Aff. at ¶ 4, Exh. 1 to Def.’s L.R. 56.1
Stmt.

Mazzacano

business

also

practices,

testified

Monarch

that

runs

all

as
new

part

of

accounts

its

regular

through

an

outside bankruptcy “scrub” service, where the new placements are
5

checked for bankruptcy, before it begins any collection activity.
Id. at ¶ 5; Mazzacano Dep. at 17:15-18, Exh. 2 to Def.’s L.R. 56.1
Stmt. In addition, Monarch employees “are trained, and there is a
procedure in place, when a consumer indicates that she has filed
bankruptcy, for the collector to

notate the account, and the

account is closed to the collection floor.” Mazzacano Aff. at ¶ 8.
Mazzacano also testified that Monarch’s collectors are monitored
and supervised daily by assistant managers, managers, the vice
president of collections, the quality assurance department, and
the compliance department to ensure compliance with the FDCPA.
Mazzacano Dep. at 9:8-10:9.
In addition to Mazzacano’s testimony, Monarch produced two
versions of its written bankruptcy policy. Both documents outline
the three general ways in which Monarch may become aware of a
bankruptcy—through

a

verbal

notification

from

the

consumer,

a

written notification from any source, or a “scrub” notification
from Experian—and define the specific steps collectors are to take
in each instance. See Exh. F to Pl.’s L.R. 56.1 Stmt. (DN 30-2).
Plaintiff’s argument that Monarch’s procedures are not reasonably
adapted to avoid violating the FDCPA’s ban on collecting from
bankrupt consumers homes in on one specific difference in the two
versions’

descriptions

of

the

“scrub

which are described below.

6

notification”

procedures,

In

the

policy

Monarch

originally

produced,

the

“Scrub

Notification” section states that all new accounts are sent to
Experian within 24 hours of placement.

It goes on to describe the

following specific steps:


Monarch uploads a file containing new accounts to Experian
“for processing through Experian’s First Sweep product”;



Experian

processes

the

accounts

and

returns

positive

bankruptcy “hits” to Monarch via a file download;


Monarch

processes

the

“hit

file

and

all

hits

are

closed

systemically according to client specifications”;


“Experian
Bankrupt

continually
accounts

monitors
a

for

all
of

period

accounts
6

months

to
and

identify
hits

are

returned in the same manner as described above.”

Id. at MRM00010 (DN 30-2).
At her deposition, Mazzacano testified that she was uncertain
whether

this

policy

was

in

place

at

the

time

Monarch

sent

plaintiff the January 5, 2015, letter. Later, in a supplemental
discovery response, Monarch produced a different version of its
written

bankruptcy

policy,

stating

that

that

policy,

not

the

earlier one, was in fact the one in effect at the relevant time.
See Exh. F. to Pl.’s L.R. 56.1 Stmt.
The

later

produced

policy

contains

a

section

captioned

“Experian Notification,” which states that all new accounts are
sent to Experian within 24 hours of placement.
describe the following steps:
7

It goes on to



“Positive bankruptcy hits are returned to Monarch via file
download”;



“Monarch

processes

the

hit

file

and

all

hits

are

closed

systemically according to client specifications.”
Id.
Plaintiff makes much of the fact that Monarch’s supplemental
discovery

response,

which

includes

the

version

that

does

not

reference Experian’s ongoing monitoring for a six-month period,
was late and lacked appropriate certifications. Although plaintiff
does not clearly explain how this objection bears on her theory of
liability, it seems she believes that if Monarch is held to the
policy it initially produced, it cannot prevail on its bona fide
error

defense.

actually

She

effective,

bankruptcy

before

reasons:
it

sending

“If

would

Defendant’s

have

the

known

January

15

procedures

about
(sic)

were

Plaintiff’s
letter

that

violated the FDCPA.” Pl.’s Opp. at 4. In other words, she points
to the fact that she received the letter as proof that Monarch’s
procedures

were

unreasonable.

If

this

reasoning

were

correct,

however, the bona fide error defense could never prevail. Indeed,
the defense assumes that a violation occurred notwithstanding the
procedures

the

debt

collector

had

in

place

to

avoid

such

violations; if all that were necessary to refute the defense were
to show that a violation did in fact occur, the defense would be
meaningless.

8

Moreover,
Monarch’s

plaintiff

policy

was

does

not

indeed

the

meaningfully
one

it

dispute

that

disclosed

in

if
its

supplemental discovery, that policy satisfies—and, indeed, goes
well beyond—the criteria the Seventh Circuit concluded in Hyman v.
Tate, 362 F.3d 965 (7th Cir. 2004), were reasonably adapted to
avoid

dunning

a

creditor

in

bankruptcy.

In

Hyman,

the

debt

collector presented evidence that it relied on its client not to
forward

bankrupt

accounts,

and

that

it

immediately

ceased

collection efforts once it learned of a bankruptcy filing. Id. at
967. Here, the undisputed evidence shows that Monarch’s bankruptcy
policy

included

both

of

these

elements,

as

well

as

employee

training on compliance with the FDCPA; employee monitoring and
supervision to ensure compliance in practice; and a procedure for
forwarding all new accounts to Experian to be checked for possible
bankruptcies.4
Plaintiff assails these procedures as “inherently flawed,”
arguing that “Experian does not actively search for bankruptcy
filings, it only reports the information provided to it by others”
(an assertion for which she cites no factual support), and that
Monarch

should

have

asked

all

three

of

the

well-known

credit

reporting agencies—not just Experian—to scrub new accounts. But
4

I am mindful that in Hyman, the court concluded after a trial,
rather than at summary judgment, that the defendant had
established the bona fide error defense. But this distinction does
not alter my analysis here because plaintiff has not raised a
material factual dispute regarding Monarch’s policies.
9

the court made clear in Hyman that debt collectors need not take
every possible precaution to avoid making an error that results in
a violation, as Ҥ 1692k(c) only requires collectors to adopt
reasonable procedures.” Id. at 968 (upholding the defendant’s bona
fide error defense even though it “could have done more to assure
that

bankruptcy

proceedings

had

not

been

initiated”).

In

any

event, there is no dispute that the reason Experian’s bankruptcy
scrub on plaintiff’s account did not return a positive “hit” is
that plaintiff filed for bankruptcy several months after the scrub
was performed. Whether Monarch had requested a scrub from one
agency

or

three

plaintiff’s

would

cited

not

have

authorities

altered

is

to

this

the

outcome.

contrary,

None
and

of

none

supports her entitlement to a trial on the facts here.
Accordingly, I conclude that Monarch has established the bona
fide

error

defense

completion,

as

however,

a

I

matter
briefly

of

law.

address

In

the

Monarch’s

interest

of

additional

arguments that it is entitled to summary judgment on Counts III
and IV of the complaint independently of that defense. Because it
is undisputed that Monarch ceased collection efforts even before
it learned of plaintiff’s bankruptcy, her § 1692f claim alleging
unconscionable collection means fails as a matter of law under
Turner
there

and
is

Randolph.
no

evidence

See

Randolph, 368 F.3d at 733. Moreover,

(nor

even

does

plaintiff

contend)

that

Monarch knew she was represented by counsel at the time it sent
10

the

January

5,

2015,

letter,

knocking

out

her

§ 1692(c)(a)(2)

claim as well. Id. at 730 (Ҥ 1692c(a)(2)...makes liability depend
on the actor’s knowledge.”); Dore v. Five Lakes Agency, Inc., No.
14 C 6515, 2015 WL 4113203, at *3 (N.D. Ill. July 8, 2015) (Shah,
J.)

(“Section

actually

1692c(a)(2)

knows

emphasis).

that

Moreover,

only

consumer

the

applies

is

defendant’s

if

debt

collector

represented.”)

(original

arguments

the

stand

unrebutted,

as

plaintiff tacitly concedes that Monarch is entitled to judgment on
her

§ 1692f

claim,

see

Pl.’s

Resp.

at

3,

and

she

offers

no

response at all to defendant’s argument that it is entitled to
judgment

on

her

§ 1692(c)(a)(2)

claim.

Accordingly,

I

conclude

that Monarch is entitled to summary judgment on Counts III and IV
of plaintiff’s complaint regardless of its ability to establish
the bona fide error defense.
III.
For

the

foregoing

reasons,

defendant’s

motion

for

summary

judgment is granted, and plaintiff’s motion for summary judgment
is denied.
ENTER ORDER:

_____________________________
Elaine E. Bucklo
United States District Judge
Dated: December 13, 2016

11