Johnson v. Enhanced Recovery Company, LLC
Filing
82
OPINION AND ORDER DENYING 61 MOTION for Summary Judgment , GRANTING 64 MOTION for Summary Judgment . The Clerk shall enter judgment in favor of defendant Enhanced Recovery Company LLC reflecting this ruling. Signed by Judge Philip P Simon on 1/24/19. (ksp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
ERIN JOHNSON, on behalf of plaintiff
and a class,
)
)
)
Plaintiff,
)
)
vs.
)
)
ENHANCED RECOVERY COMPANY, LLC, )
)
Defendant.
)
2:16CV330-PPS
OPINION AND ORDER
In this certified class action, the plaintiff class alleges that a dunning letter sent by
defendant Enhanced Recovery Company, LLC was false, misleading or confusing in
violation of the Fair Debt Collection Practices Act. The parties have filed cross-motions
for summary judgment, putting before me the question whether the claim can be
decided as a matter of law based on undisputed facts, without a trial. Neither party has
requested a jury trial, so the matter would ultimately be decided by me even if I found
that material disputes of fact preclude summary judgment.
Summary judgment must be granted when “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(a). A genuine issue of material fact exists when “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). Not every dispute between the parties makes
summary judgment inappropriate: “[o]nly disputes over facts that might affect the
outcome of the suit under the governing law will properly preclude the entry of
summary judgment.” Id.
Undisputed Facts
ERC is an accounts receivable management company that provides debt
collection services for its clients, one of which is Sprint, the wireless telephone and
internet service provider. [DE 63-1 at 5,6.] ERC received the collection account of
plaintiff Erin Johnson with Sprint on March 6 or 7, 2016. [DE 63-1 at 17.] Johnson has
never used a cell phone for other than personal use, and therefore the debt on her
account with Sprint was not incurred for business purposes. [DE 63-2 at 27.]
ERC sent Johnson three collection letters concerning her Sprint account. The
initial collection letter was sent by ERC on March 8, 2016. Here’s what it said in relevant
part:
Upon receipt and clearance of $1,094.72 [full balance of debt], your
account will be closed and collection efforts will cease.
This letter serves as notification that your delinquent account may
be reported to the national credit bureaus.
[DE 65-1 at 4.]
A second letter dated April 21, 2016 is the focus of this lawsuit. Johnson did not
receive the April 21 letter until May 5, 2016. [DE 63-2 at 23.] The pertinent portion of
the letter reads:
Our records indicate that your balance with Sprint remains unpaid;
therefore your account has been placed with ERC for collection efforts.
We are willing to reduce your outstanding balance by offering discounted
options.
2
Option 1: Pay the settlement of $875.78, please remit by May 26, 2016.
Option 2: Pay the settlement of $930.51, payable in 2 monthly payments of
$465.26.
Option 3: Pay the settlement of $985.25, payable in 3 monthly payments of
$328.42.
We are not obligated to renew this offer.
This letter serves as notification that your delinquent account may be
reported to the national credit bureaus.
Payment of the offered settlement amount will stop collection activity on this
matter....
Unless you dispute the validity of the debt, or any portion thereof, within
thirty (30) days after your receipt of this notice, the debt will be assumed
to be valid by us.
[DE 65-1 at 5] (emphasis added). The language I have emphasized in bold is what is at
issue in this case.
ERC’s Senior Vice President of Compliance, Jason Davis, testified in his
deposition that “collection activity” as used in the letter meant that phone calls and
letters from ERC about the account would stop upon receipt of the full amount of the
debt, and if the debt had already been reported, full payment would result in updated
credit reporting to reflect that the debt had been paid in full or settled. [DE 63-1 at 3,
20.]
Depending on the client, ERC waits between 33 and 45 days after it sends the
first collection letter before reporting a debt to credit bureaus. [DE 63-1 at 12.]
According to ERC’s policies, Johnson’s debt to Sprint became eligible for credit
reporting on April 21, 45 days after ERC received the account. [DE 63-1 at 22.] ERC
3
first reported Johnson’s Sprint account debt to credit reporting agencies on April 24,
2016, more than a month before the earliest due date of the settlement options offered in
the April 21 letter. [DE 63-1 at 19.]
Johnson testified that the April 21 letter was not clear whether her debt would be
reported or had already been reported. [DE 63 at ¶36.] Johnson interpreted the April 21
letter to mean that she could prevent the Sprint account from appearing on her credit
reports if she made a payment as requested in the letter, or disputed the debt within 30
days as referenced in the letter. [DE 63 at ¶38.] Recall that Johnson received the April
21 letter in early May. And the day after reading the April 21 letter, Johnson checked
her credit reports and found that the debt had already been reported. [DE 63-2 at 23.]
She then disputed the debt to TransUnion and contacted an attorney. [Id. at 23-24.]
A third letter was sent to Johnson dated June 6, 2018. [DE 63-6 at 2.] The June 6
letter is largely identical to the April 21 letter, offering three settlement options (but for
lower amounts more favorable to the debtor than previously offered). [Id.]
Johnson did not submit any payment on her Sprint account, but on July 24, 2016,
ERC sent a “deletion” to the credit bureaus concerning Johnson’s account because ERC
had received notice of Johnson’s “lawsuit or pre-suit” disputing the debt. [DE 63-1 at
19.] Johnson never made any payments to ERC on the Sprint account, but does not
dispute the accuracy of the balance due on the account. [DE 63-2 at 25.]
4
Discussion
The claim arises under 15 U.S.C. §1692(e), which prohibits false or misleading
representations in connection with debt collection, and offers a non-exhaustive list of
more than a dozen examples of impermissible conduct. Lox v. CDA, Ltd., 689 F.3d 818,
822, 827 (7th Cir. 2012). A plaintiff bringing a §1692(e) claim is not required to prove that
she was misled to her detriment or that she suffered actual damages. Lox, 689 F.3d at
826; Muha v. Encore Receivable Mgmt., Inc., 558 F.3d 623, 629 (7th Cir. 2009).
The determination whether a representation is false or misleading is made from
the perspective of what the Seventh Circuit calls an “unsophisticated consumer.”
“[O]ur test for determining whether a debt collector violated §1692e is objective,
turning not on the question of what the debt collector knew but on whether the debt
collector’s communication would deceive or mislead an unsophisticated, but
reasonable, consumer.” Turner v. J.V.D.B. & Assoc., 330 F.3d 991, 995 (7th Cir. 2003). This
hypothetical person can be “uninformed, naive [and] trusting” but has basic knowledge
about the financial world and the ability to draw logical inferences and conclusions.
Lox, 689 F.3d at 822 (quoting Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir. 2003), and Wahl v.
Midland Credit Mgmt., 556 F.3d 643, 645 (7th Cir. 2009)). Because the “unsophisticated
consumer” standard is not so low as a “least sophisticated consumer” standard, a
collection letter is not misleading under §1692e — at least in the Seventh Circuit —
unless it is confusing to “a significant fraction of the population.” Lox, 689 F.3d at 822,
quoting Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 574 (7th Cir. 2004).
5
The Seventh Circuit has grouped FDCPA cases alleging deceptive or misleading
statements into three categories. The first category of cases involve statements that on
their face are plainly not misleading or deceptive. Ruth v. Triumph Partnerships, 577 F.3d
790, 800 (7th Cir. 2009). In that sort of case, dismissal or summary judgment is granted
to the defendant without the need for extrinsic evidence of consumer confusion,
because even without such evidence the court can determine that “the statement
complied with the law.” Id.
The second category of cases “involves statements that are not plainly
misleading or deceptive but might possibly mislead or deceive the unsophisticated
consumer.” Id. This is the category of claim where evidence is needed to prove that the
collection letter would likely deceive or mislead an unsophisticated, but reasonable,
consumer. In a case of this kind, the Court of Appeals has held “that plaintiffs may
prevail only by producing extrinsic evidence, such as consumer surveys, to prove that
unsophisticated consumers do in fact find the challenged statements misleading or
deceptive.” Id. See also Lox, 689 F.3d at 822.
The third type of case described in Ruth is a lay down win for the plaintiff. These
are the cases where the collection letter includes plainly deceptive language. When
confronted with such a letter, a court can grant summary judgment to the plaintiff
“without requiring them to prove what is already clear.” Id.
Recall that Johnson’s claim is based on letter that she received from ERC dated
April 21 and which she received in early May. This was the second of three letters that
6
she received from ERC. Johnson argues that this letter falls into the third category of
claims as discussed in Ruth — that the letter is plainly misleading on its face because it
falsely suggested that credit reporting could be prevented by timely payment of an
offered settlement amount. [DE 62 at 15.] The argument depends on Johnson’s
interpretation of the phrase “may be” in the notification “that your delinquent account
may be reported to the national credit bureaus,” and her interpretation of the
subsequent sentence advising that “[p]ayment of the offered settlement amount will
stop collection activity on this matter.” [DE 71-1 at 2.] ERC contends that the notice is
not plainly deceptive or misleading. Instead, ERC argues this is a category 2 case as
described in Ruth in which Johnson can only prevent summary judgment in ERC’s favor
by offering extrinsic evidence of consumer confusion or deception, which Johnson
admittedly does not have.
Even with the understanding that credit bureau reporting is “collection activity”
within the meaning of the letter, the letter does not plainly indicate either that credit
bureau reporting has not yet taken place or that timely payment will prevent a report of
the debt to the national credit bureaus. A consumer might possibly construe the letter
to mean those things, but would not necessarily do so. It is also reasonable to construe
the letter as intended, namely as a notice that the delinquent account is subject to credit
reporting (which could occur or has already occurred), but that payment of an offered
settlement will impact any credit reporting (such as by an updated notice that the debt
has been resolved) as well as other collection efforts (such as additional dunning
7
letters). The “delinquent account” language may reasonably be read as a statement
about eligibility for credit reporting but not a statement as to whether or not the
account has yet been reported. That the same notice about reporting to the national
credit bureaus appears in all three letters, both before and after the debt was reported,
supports this generic interpretation, because the language is then accurate in all three
letters both before and after actual reporting took place.
In the second sentence of the challenged language, the phrase “stop collection
activity” cannot reasonably be read to mean “prevent collection activity” when the
language appears in a letter that is itself “collection activity.” Like the sentence about
credit reporting, this statement about stopping collection activity is accurate in all three
letters if understood to mean that resolution of the debt will stop further collection
activity, which for a debt already reported means an updated report reflecting that the
debt has been resolved. With respect to a debt already reported, because the word
“stop” connotes “bring to a halt” rather than “delete” or “reverse,” reasonable
interpretation includes action taken to reflect the satisfaction of the previously reported
debt.
Johnson wrongly asserts that ERC ignores the three categories of Ruth to contend
that extrinsic evidence is always necessary to support a §1692(e) claim. [DE 75 at 2-3.]
To the contrary, ERC expressly acknowledges that extrinsic evidence of consumer
confusion is required only in the one category of cases involving language that is not
confusing or misleading on its face but might be so to a significant fraction of the
8
population. [DE 71 at 5, 7.] Johnson’s efforts to avoid an adverse summary judgment
depend on her misinterpretation of the standard for the second category of cases. The
first and third categories involve statements that are, on the one hand, plainly not
deceptive, or, on the other, plainly are deceptive, leaving the middle category as the
broader one encompassing statements that are only possibly deceptive. But Johnson
argues that the 7th Circuit has held that extrinsic evidence is not required of a consumerdebtor where a collection representation is “susceptible to two different constructions,
one of which is inaccurate.” [DE 75 at 5.]
Veach v. Sheeks, one of the cases Johnson relies on for this proposition, is
distinguishable because it involves an actual misrepresentation as to the amount of the
debt, not a statement that is merely potentially confusing or misleading. Veach, 316 F.3d
at 693. Chuway v. National Action Financial Services, Inc., 362 F.3d 944, 948 (7th Cir. 2004),
also cited by Johnson, affirms the requirement of extrinsic evidence where “it is unclear
whether the letter would confuse intended recipients of it.” There, the Seventh Circuit
found that no extrinsic evidence was required to “create a triable issue” because to
understand the dunning letter’s confusing statement about the amount of the debt “one
has to be exceptionally ingenious.” Id. Chuway doesn’t support summary judgment in
Johnson’s favor here, where it is only “unclear whether the letter would confuse”
debtor-recipients. Id. In addition, both Veach and Chuway involve representations on a
matter – the amount of the debt – as to which the FDCPA contains a specific disclosure
requirement. Claims of noncompliance with such requirements under §1692g(a)(2) --
9
rather than §1692(e) as here -- do not require extrinsic evidence of confusion. Janetos v.
Fulton Friedman & Gullace, LLP, 825 F.3d 317, 323 (7th Cir. 2016).
Given the parties’ rival analyses, the case turns on whether the second category
of cases requiring extrinsic evidence encompasses those in which a collection
representation is ambiguous and one interpretation is accurate and the other false.
Ruling on the previous motion to dismiss, I noted that the word “may” has two
different possible meanings in its context here – either “can” or “might in future.” [DE
27 at 9.] The former interpretation is espoused by ERC and, as a statement of the debt’s
eligibility for credit reporting, was true each time it was used in the three collection
letters. Johnson points out that if the word “may” is read as “might in future” then the
statement, when interpreted in conjunction with the next sentence about payment
stopping collection activity, might suggest that timely payment could prevent credit
reporting.
Johnson cites Gonzalez v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1062 (9th Cir. 2011),
in support of the assertion that language with two reasonable interpretations, only one
of which is accurate, constitutes deception in violation of the FDCPA. First, Gonzalez
involves not merely misleading information, but a violation of the FDCPA by the
implied threat of collection action that is actually prohibited by law. Gonzalez, 660 F.3d
at 1062. There is no such circumstance here. More importantly, Gonzalez is a decision of
the Ninth Circuit, applying the “least sophisticated debtor” standard in determining
whether collections language is deceptive or misleading. Id. at 1061-62. This standard
10
is different from the Seventh Circuit’s “unsophisticated consumer,” and inconsistent
with this circuit’s rubric of three categories of challenged language. This inconsistency
was noted by the Seventh Circuit in Lox. Lox, 689 F.3d at 822. Gonzalez cites decisions of
the Third, Sixth and Second Circuits to support its position. Id. at 1062. And like
Gonzalez, these decisions also identify the principle Johnson relies on as flowing from
the lower “least sophisticated debtor” standard that is inapplicable in the Seventh
Circuit. Brown v. Card Service Center, 464 F.3d 450, 454 (3rd Cir. 2006); Kistner v. Law
Offices of Michael P. Margelefsky, LLC, 518 F.3d 433, 441 (6th Cir. 2008); Russell v. Equifax
A.R.S., 74 F.3d 30, 34 (2nd Cir. 1996).
In short, it appears that the Seventh Circuit is out of step with four other circuits
in the standard it uses in § 1692(e) cases. But that is neither here nor there for present
purposes. In a hierarchical system of courts, my job is to follow what my superiors tell
me, and the Seventh Circuit has made it abundantly clear that “the unsophisticateddebtor standard is an objective one and is not the same as the rejected leastsophisticated-debtor standard.” Durkin v. Equifax Check Services, Inc., 406 F.3d 410, 414
(7th Cir. 2005).
In sum, I am persuaded that under the Seventh Circuit’s approach, ERC is correct
when it argues that the two possible interpretations require extrinsic evidence to
establish that a significant fraction of the population would be misled by the letter’s
language. [DE 71 at 5.] Because the language is not plainly deceptive, “the plaintiff
must come forward with evidence beyond the letter and beyond [her] own self-serving
11
assertions that the letter is confusing in order to create a genuine issue of material
fact[.]” Durkin, 406 F.3d at 415. This extrinsic evidence can take the form of an
appropriately designed and conducted consumer survey or an appropriate expert
witness. Sims v. GC Services L.P., 445 F.3d 959, 963 (7th Cir. 2006) (citing Chuway, 362
F.3d at 948). Plaintiff lacks any such objective evidence, banking instead on her
assertion that the letter “is deceptive on its face.” [DE 62 at 15.] Now with all the
parties’ evidence and argument before me, I reject that position. Because I conclude
that the challenged statements in ERC’s letter are not plainly misleading or deceptive,
Johnson’s failure to offer extrinsic evidence that the language would confuse or mislead
a significant fraction of the population is fatal to her FDCPA claim. Sims, 445 F.3d at
963.
Conclusion
The delinquency notice provided by ERC presents the “normal case” in which a
plaintiff alleging a violation of the FDCPA for confusing or misleading statements
“must come forward with more than her own confusion as evidence.” McKinney v.
Cadleway Properties, Inc., 548 F.3d 496, 503 (7th Cir. 2008). Without a showing by extrinsic
evidence that the language Johnson cites “unacceptably increases the level of
confusion” such that “a significant fraction of the population would be similarly
misled,” ERC is entitled to judgment as a matter of law. Sims v. GC Servs. L.P., 445 F.3d
959, 963 (7th Cir. 2006) (internal quotation marks omitted). See also Gruber v. Creditors’
Protection Service, Inc., 742 F.3d 271, 274 (7th Cir. 2014) (“If not even a significant fraction
12
of the population would be misled by the debt collector’s letter, then dismissal is
required.” (internal quotation marks omitted)).
ACCORDINGLY:
Plaintiff Erin Johnson’s motion for summary judgment [DE 61] is DENIED.
Defendant Enhanced Recovery Company, LLC’s motion for summary judgment
[DE 64] is GRANTED.
The Clerk shall enter judgment in favor of defendant Enhanced Recovery
Company, LLC reflecting this ruling.
SO ORDERED.
ENTERED: January 24, 2019.
/s/ Philip P. Simon
PHILIP P. SIMON, JUDGE
UNITED STATES DISTRICT COURT
13
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?