Smothers v. Midland Credit Management, Inc.
MEMORANDUM AND ORDER denying 23 Motion for Summary Judgment; granting 25 Motion for Summary Judgment. Signed by District Judge Carlos Murguia on 12/29/2016. (ydm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
BETTY JO SMOTHERS,
MIDLAND CREDIT MANAGEMENT,
Case No. 16-2202-CM
MEMORANDUM AND ORDER
Plaintiff Betty Jo Smothers filed this action under the Fair Debt Collection Practices Act (the
“FDCPA”), 15 U.S.C. § 1692 et seq., alleging that defendant Midland Credit Management, Inc.
violated the FDCPA by sending a single debt collection letter to plaintiff that included false, deceptive,
and misleading representations. This matter is before the court on two motions that will effectively
resolve the case: defendant’s motion for summary judgment (Doc. 23) and plaintiff’s motion for
summary judgment (Doc. 25). For the reasons stated below, the court denies defendant’s motion and
grants plaintiff’s motion.
The parties stipulated to nearly all of the relevant facts in this case. Highly summarized, those
facts are as follows:
Plaintiff owed credit card debt to Citibank (South Dakota), N.A. (“Citibank”). Due to nonpayment, Citibank charged off the debt, and defendant eventually purchased the debt. The statute of
limitations for filing a lawsuit to collect on the debt has since passed.
After the statu of limita
ations expired defendant sent a letter to plaintiff that states, “The law
limits how long you can be sued on a debt. Because of th age of yo debt, we will not sue you for
ncludes the following:
it.” The letter also in
dant at all rel
levant times had a writte policy
The letter does not th
specifyin that, after a debt was out of statute defendant would not r
recalculate th statute of
limitation if it receiv a payme toward th debt—eve if the law allowed rev
dgment is app
propriate if the moving p
nstrates that there is “no genuine
dgment as a matter of law Fed. R. Civ. P.
issue as to any mater fact” and that it is “entitled to jud
56(a). In applying th standard, the court views the evid
dence and all reasonable inferences t
in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670
(10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
Congress enacted the FDCPA in response to reports of “abusive, deceptive, and unfair debt
collection practices by many debt collectors.” 15 U.S.C. § 1692(a). One of the purposes of the
FDCPA is “to eliminate [these] abusive debt collection practices.” Id. § 1692(e). To further this
purpose, the FDCPA prohibits debt collectors from using “any false, deceptive, or misleading
representation or means in connection with the collection of any debt.” Id. § 1692e. To establish a
violation of § 1692e, the plaintiff must show that (1) the plaintiff is a “consumer” and the defendant is
a “debt collector” within the meaning of the FDCPA; (2) the debt arises out of a transaction “primarily
for personal, family, or household purposes”; and (3) the defendant used a “false, deceptive, or
misleading representation or means” when trying to collect the debt. Id. §§ 1692a, 1692e; see also
Yang v. Midland Credit Mgmt., Inc., No. 15-2686-JAR, 2016 WL 393726, at *1 (D. Kan. Feb. 2,
2016). The parties agree that the first and second elements are not at issue; only the third element is
Plaintiff argues that she is entitled to summary judgment for two reasons: (1) defendant
misrepresented the character and nature of the debt when it failed to disclose the revivable nature of a
time-barred debt in Kansas; and (2) defendant engaged in a deceptive practice when it described the
benefits of a partial payment without disclosing the legal consequences of such a payment in Kansas.
These two arguments are based on Sections 1692e(2)(A) and 1692e(10) of the FDCPA. Defendant
counters that summary judgment in its favor is justified because (1) the statute of limitations disclosure
was true at the time defendant mailed the letter; (2) the disclosure would be true even if plaintiff made
payments on the debt because defendant’s policies prohibited suing on time-barred debt—regardless of
whether partial payment revived the statute of limitations; and (3) numerous courts have approved
letters like the one issued here.
When analyzing a claim under the FDCPA, the “overwhelming majority of Courts of Appeals”
apply the “least sophisticated consumer” or the “least sophisticated debtor” standard, which is also
referred to as the “unsophisticated consumer” or the “unsophisticated debtor” standard. Jensen v.
Pressler & Pressler, 791 F.3d 413, 419 n.3 (3d Cir. 2015). Although the Tenth Circuit has not
expressly adopted this standard, it has recognized that other circuits apply an objective standard when
analyzing FDCPA claims, “measured by how the ‘least sophisticated consumer’ would interpret the
notice received from the debt collector.” Ferree v. Marianos, No. 97-6061, 1997 WL 687693, at *1
(10th Cir. Nov. 3, 1997) (citation omitted). In Ferree, the Tenth Circuit explained that “the test is how
the least sophisticated consumer––one not having the astuteness of a [lawyer] or even the
sophistication of the average, everyday, common consumer––understands the notice he or she
receives.” Id. (citation omitted). The Tenth Circuit, however, also noted that the hypothetical
consumer “can be presumed to possess a rudimentary amount of information about the world and a
willingness to read a collection notice with some care.” Id. (citation omitted). Based on this guidance
from the Tenth Circuit and consistent with recent case law in this district, the court predicts that the
Tenth Circuit would hold that the “least sophisticated consumer” standard applies to FDCPA claims.
See e.g., Kalebaugh v. Berman & Rabin, P.A., 43 F. Supp. 3d 1215, 1222 (D. Kan. 2014); Yang, 2016
WL 393726, at *3.
There is a circuit split over whether the application of the “least sophisticated consumer” test in
§ 1692e claims is a question of law or fact. Kalebaugh, 43 F. Supp. 3d at 1222. Although not
definitively resolving the issue, in Sheriff v. Gille, the Supreme Court recently noted in dicta that “the
application of the FDCPA to [undisputed] facts is a question of law,” and the lower court “therefore
properly granted summary judgment” on the issue of whether a practice was “false, deceptive, and
misleading.” 136 S. Ct. 1594, 1603 n.7 (2016). This is consistent with the Second, Fourth, and Ninth
Circuits, which “have determined that the question [of] whether a communication is false and
deceptive in violation of [§] 1692e is a question of law for the [c]ourt.” Kalebaugh, 43 F. Supp. 3d at
1222 (citations omitted). Further, although the Fifth, Sixth, Seventh, and Eleventh Circuits held this
determination is a question of fact, these courts have “explained that not all cases require a jury trial if
material facts are not disputed and the court is able to decide the case as a matter of law based on the
language in the collection letter.” Id. Consistent with the Supreme Court’s dicta and recent case law
from this district, the court predicts that “the Tenth Circuit would decide that the determination of
whether the language in a collection letter is confusing or misleading to the least sophisticated
consumer under § 1692e is a question of law.” Yang, 2016 WL 393726, at *3.
15 U.S.C. § 1692e(2)(A)
In Section 1692e(2)(A), the FDCPA prohibits the false representation of “the character,
amount, or legal status of any debt.” Plaintiff first argues that defendant falsely represented the nature
and character of the debt because defendant said that it would not sue plaintiff on her debt, because of
the age of the debt. But if plaintiff made partial payments (as defendant encouraged in its letter), then
under Kansas law, the statute of limitations on the debt would be revivable. In the letter, defendant
represented that making payments would allow plaintiff to “put this debt behind her” and give plaintiff
“peace of mind.” Plaintiff argues that these “benefits” are not benefits at all, because the debt is
already time-barred, and the only thing that could revive a collector’s ability to sue on the debt is
making the payments as defendant suggests.
The question here is whether defendant’s statements that “[t]he law limits how long you can be
sued on a debt,” and “[b]ecause of the age of your debt, we will not sue you for it,” taken in context
with the rest of the letter, constituted a misrepresentation. Defendant’s statements (that the law limits
how long the consumer can be sued and that defendant would not sue on the debt) are technically true
if viewed in isolation. The law does have limits, and defendant’s policy is that it will not sue on stale
debts. And although judicial enforcement of the debt is time-barred, the debt still exists. See Huertas
v. Galaxy Asset Mgmt., 641 F.3d 28, 32–33 (3d Cir. 2011); Freyermuth v. Credit Bureau Servs., Inc.,
248 F.3d 767, 771 (8th Cir. 2001) (holding that “in the absence of a threat of litigation or actual
litigation, no violation of the FDCPA has occurred when a debt collector attempts to collect on a
potentially time-barred debt that is otherwise valid”).
But the statements are also incomplete. Once expired, the law’s time limits can be revived in
Kansas. Kan. Stat. Ann. § 60-520. And while defendant may not sue, defendant can resell the debt to
a collector who may. Defendant’s promise not to sue does not impact the legal effect of making a
partial payment because the revival of a statute of limitations is statutory—not a decision made by a
debt collector. See Pantoja v. Portfolio Recovery Assocs., LLC, 78 F. Supp. 3d 743, 746 (N.D. Ill.
2015) (“The debt is revived by operation of law, not at defendant’s election.”). Given these
circumstances, listing the “benefits” of paying stale debt—while omitting the concurrent risks of
paying the debt—is misleading to the least sophisticated consumer. The consumer may indeed receive
some of the benefits listed, but she also exposes herself in Kansas to lawsuit on the previously-stale
debt—perhaps not by defendant, but by another debt collector.
Plaintiff is not the first to raise the “misrepresentation by omission” issue. In United States v.
Asset Acceptance, LLC, No. 8:12-CV-00182-JDW-EAJ, slip op. (M.D. Fla. Jan. 31, 2012), the
Attorney General alleged that making demands on portfolios of stale debt can be deceptive. The
United States raised the concern that in some states, making a partial payment can revive a stale debt.
(Doc. 26-3 at 12.) The court ultimately entered a consent decree that did not address that issue.
Instead, the court required a disclosure that the statute of limitations had expired, but not that a partial
payment would revive the statute of limitations. Defendant argues that the fact that the Federal Trade
Commission agreed to omit the revival disclosure in the consent decree weighs in favor of defendant’s
arguments here. The court, however, declines to read too much into a consent decree that was likely
the result of compromise.
Defendant also directs the court to guidance from the Consumer Financial Protection Bureau
(“CFPB”). The CFPB considered issuing a rule that required debt collectors to disclose that a partial
payment may revive the statute of limitations on some debts. Ultimately, the CFPB declined to move
forward with a proposal:
Consumers may revive a time-barred debt under state law if they make a payment on it
or acknowledge that the debt is theirs. Consumers may believe that these actions would
be beneficial to them. To try to correct this impression, collectors could attempt to
disclose that these actions in fact could permit collectors to subsequently file a lawsuit
because the debt has been revived. However, the Bureau’s testing to date suggests that
consumers may not fully understand such a disclosure, because it seems counterintuitive
See http://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf. With all
due respect to the CFPB, the court believes that a disclosure could be drafted in such a way as to make
consumers aware of the risks attendant to making payments on a stale debt, without confusing them.
The court recognizes that several other district courts have found it unnecessary to advise
consumers about the potential revival of a statute of limitations. See, e.g., Olsen v. Cavalry Portfolio
Servs., LLC, No. 8:15-cv-2520-T-23AAS, 2016 WL 4248009, at *2 (M.D. Fla. Aug. 11, 2016) (“[T]he
FDCPA imposes on Cavalry no duty to advise Olsen of potential defenses, including the expired
limitation or the consequence of partial payment”); Filgueiras v. Portfolio Recovery Assocs., LLC, No.
15-8144, 2016 WL 1626958, at *9–10 (D.N.J. Apr. 25, 2016) (accepting plaintiff’s claim that partial
payment “would restart the statute of limitations, giving [t]he creditor a new opportunity to sue for the
full debt,” but holding that a collection letter stating that “[b]ecause of the age of your debt, we will not
sue you for it” did not violate the FDCPA); Schaefer v. ARM Receivable Mgmt., No. 09-11666-DJC,
2011 WL 2847768, at *4 (D. Mass. July 19, 2011).
Three appellate courts, however, recently have expressed concern with a failure to disclose the
possibility of revival—even if they did not ultimately rest their holding on the concern. See, e.g.,
Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507, 513 (5th Cir. 2016) (finding the FDCPA
claim plausible and holding that “we agree that a collection letter seeking payment on a time-barred
debt (without disclosing its unenforceability) but offering a ‘settlement’ and inviting partial payment
(without disclosing the possible pitfalls) could constitute a violation of the FDCPA.”); Buchanan v.
Northland Group, Inc., 776 F.3d 393, 399 (6th Cir. 2015) (reversing dismissal of FDCPA claim
involving a letter that used the term “settlement offer” and stating, “The other problem with the letter is
that an unsophisticated debtor who cannot afford the settlement offer might nevertheless assume from
the letter that some payment is better than no payment. Not true: Some payment is worse than no
payment. The general rule in Michigan is that partial payment restarts the statute-of-limitations clock,
giving the creditor a new opportunity to sue for the full debt. As a result, paying anything less than the
settlement offer exposes a debtor to substantial new risk.”) (internal citation omitted); McMahon v.
LVNV Funding, LLC, 744 F.3d 1010, 1021 (7th Cir. 2014) (addressing a letter that offered to “settle” a
debt and stating, “The fact that both [ ] letters contained an offer of settlement makes things worse, not
better, since a gullible consumer who made a partial payment would inadvertently have reset the
limitations period and made herself vulnerable to a suit on the full amount. That is why those offers
only reinforced the misleading impression that the debt was legally enforceable.”); see also Magee v.
Portfolio Recovery Assocs., LLC, No. 12 CV 1624, 2016 WL 2644763, at *4 (N.D. Ill. May 9, 2016)
(granting summary judgment for plaintiff where the debt collector used the term “settlement” and
failed to include language that the law limits how long consumers can be sued on their debt or about
potential revival of the debt upon a partial payment).
Although none of the courts identified above specifically held that a revival disclosure was
required, resolution of the question also was unnecessary. The letters involved in those cases had
other, independent problems. All of them discussed “settlement” of the debt, which was a critical
factor in the court’s opinions. Nevertheless, the court finds the courts’ concerns about the lack of a
revival disclosure persuasive. It is key to the court that the relevant standard is that of the least
sophisticated consumer. The least sophisticated consumer most certainly would not be aware that
making a payment could make the debt judicially enforceable again—particularly when the collector
tells the consumer that the law limits how long she can be sued and that the collector will not sue.
Explaining to the consumer all of the benefits she will receive by making payments on a stale debt,
while neglecting to address Kansas law that would make the debt judicially enforceable again, is a
misrepresentation of the character and legal status of the debt under the FDCPA. The court determines
as a matter of law that defendant violated the FDCPA by sending the letter to plaintiff.
15 U.S.C. § 1692e(10)
Plaintiff’s second argument is a slight variation on her first: that defendant engages in a
deceptive practice by attempting to “lure” the least sophisticated consumer into making a payment on a
time-barred debt, while failing to disclose the legal consequences of such a payment.
For the same reasons as above, the court determines that defendant violated § 1692e(10) with
its letter. Section 1692e(10) prohibits “[t]he use of any false representation or deceptive means to
collect or attempt to collect any debt or to obtain information concerning a consumer.” Defendant’s
offer to work with plaintiff to devise a payment plan—without disclosing the pitfalls of making
payments under the plan—is deceptive as a matter of law.
For the above-stated reasons, the court determines that plaintiff is entitled to summary
judgment and defendant is not. Defendant violated the FDCPA by sending plaintiff the letter offering
partial payment options on a time-barred debt without also disclosing that making a partial payment
would revive the debt as judicially enforceable under Kansas law.
IT IS THEREFORE ORDERED that defendant’s motion for summary judgment (Doc. 23) is
IT IS FURTHER ORDERED that plaintiff’s motion for summary judgment (Doc. 25) is
Dated this 29th day of December, 2016, at Kansas City, Kansas.
s/ Carlos Murguia________
United States District Judge
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