Gray v. Suttell & Associates, P.S. et al

Filing 580

ORDER GRANTING IN PART AND DENYING IN PART SECOND MOTION FOR SUMMARY JUDGMENT Re: 538 Motion for Summary Judgment. Plaintiffs' WCCA Cause of Action is dismissed with prejudice. Signed by Judge Rosanna Malouf Peterson. (AY, Case Administrator)

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WASHINGTON

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KELLI GRAY; EVA LAUBER;
DANE SCOTT; SCOTT BOOLEN;
JOEL FINCH; and all others similarly
situated,

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Plaintiffs,
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v.

NO: 2:09-CV-251-RMP
ORDER GRANTING IN PART AND
DENYING IN PART SECOND
MOTION FOR SUMMARY
JUDGMENT

SUTTELL & ASSOCIATES, P.S.;
MIDLAND FUNDING, LLC; MARK
T. CASE and JANE DOE CASE, wife
and husband; KAREN HAMMER and
JOHN DOE HAMMER, husband and
wife; ENCORE CAPITAL GROUP,
INC.; MIDLAND CREDIT
MANAGEMENT, INC.; SUTTELL &
HAMMER, P.S.; MALISA L.
GURULE; JOHN DOE GURULE;
ISAAC HAMMER; WILLIAM G.
SUTTELL and JANE DOE SUTTELL,
wife and husband,
Defendants.

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BEFORE THE COURT is Defendants Midland Credit Management, Inc.’s,
Midland Funding, LLC’s, and Encore Capital Group, Inc.’s Second Motion for
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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Summary Judgment, ECF No. 538. On November 30, 2015, this matter was

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reassigned from Judge Edward F. Shea to this Court. ECF No. 567. The Court

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heard oral argument on January 26, 2016. The Court has reviewed the motion, the

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memorandum in response (ECF No. 573), the memorandum in reply (ECF

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No. 576), has heard argument from counsel, and is fully informed.

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BACKGROUND
A. The Gray Lawsuit
Plaintiff Kelli Gray ordered an item from Spiegel Brands, Inc. (“Spiegel”)
mail-order catalogue and did not pay. On December 4, 2007, Midland Funding,

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LLC (“Midland Funding”) purchased Ms. Gray’s defaulted Spiegel account.

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Midland Funding assigned the account to its servicer, Midland Credit

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Management, Inc. (“MCMI”), which determines whether certain accounts are

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“eligible” or “not eligible” for collection. Defendants Mark T. Case and Karen

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Hammer, attorneys for Defendant Suttell & Associates (“Suttell”), filed a lawsuit

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against Ms. Gray in Spokane County Superior Court to collect the debt.

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On August 12, 2009, Ms. Gray filed the instant lawsuit before this Court.

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Ms. Gray, on behalf of herself and others similarly situated, alleged that

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Defendants violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C.

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§ 1692, et seq., the Washington State Consumer Protection Act (“WCPA”), RCW

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chapter 19.86, and the Washington State Collection Agency Act (“WCAA’), RCW

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chapter 19.16, by 1) serving and filing time-barred lawsuits (“statute-ofORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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limitations” claim); 2) requesting unreasonable attorney fees of $650.00 for a

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default judgment and $850.00 for a summary judgment (“attorney-fee” claim); and

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3) acting as a “collection agency” without a “collection agency” license

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(“licensing” claim).

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B. The Lauber Lawsuit

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Plaintiffs Eva Lauber, Dane Scott, Scott Boolen, and Joel Finch

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(collectively, “Lauber Plaintiffs”), similar to Ms. Gray, were obligated to pay a

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debt and failed to do so. On November 10, 2010, the Lauber Plaintiffs filed a

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complaint before this Court that alleged violations of the FDCPA, WCPA, and

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WCAA, alleging that Defendants: 1) filed unfair, deceptive, and misleading

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affidavits in support of state-court default and summary judgment motions

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(“affidavit” claim); and 2) acted as a “collection agency” without a “collection

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agency” license (“licensing” claim).

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C. Defendants

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For the purpose of this Order, the Court will continue to utilize Judge Shea’s

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categorization of the Defendants. Defendants Suttell & Associates PS, Suttell &

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Hammer PS, Mark Case, Jane Doe Case, Karen Hammer, Isaac Hammer, Malisa

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Gurule, John Doe Gurule, William Suttell, and Jane Doe Suttell are the “Suttell

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Defendants.” Defendants Midland Funding, LLC, Midland Credit Management,

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Inc., and Encore Capital Group, Inc., are the “Midland Defendants.”

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//
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D. Procedural History

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1. Consolidation and First Amended Complaint

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On December 29, 2010, Judge Shea consolidated the Gray lawsuit with the

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Lauber lawsuit. ECF No. 182. On March 23, 2011, Judge Shea granted Plaintiffs’

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motion for leave to amend or correct the complaint. ECF Nos. 296 and 299.

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Plaintiffs filed the First Amended Complaint on April 8, 2011. ECF No. 297. The

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First Amended Complaint is the current operative pleading in this matter.

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2. The Brent Injunction

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On March 11, 2011, the District Court for the Northern District of Ohio

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issued a preliminary injunction in Midland Funding, LLC v. Brent, No. 3:08-CV-

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1434-AK (hereinafter “Brent”). The Brent preliminary injunction prohibits

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individuals from:

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participating as class member in any lawsuit in any forum, or otherwise
filing, intervening in, commencing, prosecuting, continuing and/or
litigating any lawsuit in any forum arising out of or relating to the use
of affidavits in debt collection lawsuits by Encore Capital Group, Inc.,
and/or its subsidiaries and affiliates, including but not limited to
Midland Credit Management, Inc., Midland Funding LLC, MRC
Receivables Corp., and Midland Funding NCC-2 Corp., unless and
until such time as the Class member involved in such action timely and
validly excludes himself or herself from the class to pursue individual
relief.

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ECF No. 272-3. Interpreting the preliminary injunction, Judge Shea concluded that
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Plaintiffs could continuing litigating: 1) the attorney-fee, licensing, and statute-of20
limitations claims against both the Midland Defendants and the Suttell Defendants;
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and 2) the affidavit claim against the Suttell Defendants. ECF Nos. 299 and 364.

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Judge Shea determined that the Brent injunction barred Plaintiffs’ affidavit claims

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against the Midland Defendants. ECF No. 299.

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3. Compelled Arbitration

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On March 19, 2012, Judge Shea concluded that Plaintiff Eva Lauber must

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submit her claims to arbitration based on the Arbitration Rider included in

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Ms. Lauber’s loan agreement. ECF No. 410. As such, Judge Shea stayed

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Ms. Lauber’s claims pending arbitration. Id.

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4. Motion to Dismiss

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In April 2011, both the Suttell Defendants and the Midland Defendants

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moved to dismiss various causes of action asserted in Plaintiffs’ First Amended

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Complaint. ECF Nos. 306, 310, and 313. The Suttell Defendants moved to dismiss

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Plaintiffs’ FDCPA attorney-fee claim. ECF No. 313. Both the Suttell Defendants

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and the Midland Defendants moved to dismiss Plaintiffs’ WCPA claims. ECF

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Nos. 306, 309, 310, and 313.

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Judge Shea dismissed the FDCPA attorney-fee claim and all WCPA claims

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against the Suttell Defendants as well as Scott Boolen’s, Joel Finch’s, and Kelli

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Gray’s WCPA claims against the Midland Defendants. ECF No. 416. Judge Shea

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denied Midland Defendants’ motion as it pertained to Dane Scott’s WCPA cause

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of action. Id.

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//
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5. Certification to the Washington State Supreme Court

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On February 4, 2013, Judge Shea determined that certification to the

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Washington State Supreme Court was necessary to resolve issues of Washington

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State law. ECF No. 447. Judge Shea certified the following questions to the

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Washington State Supreme Court:

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1. Does the definition of “collection agency” in RCW 19.16.100(2)
include a person who 1) purchases claims that are owed or due or
asserted to be owed or due another, 2) undertakes no activity on said
delinquent consumer account but rather contracts with an affiliated
collection agency to collect the purchased claims, and 3) is the
named plaintiff in a subsequent collection lawsuit for said purchased
claims?

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2. Can a company, such as Midland Credit,1 file lawsuits in the
Washington [State Superior Courts] on delinquent consumer
accounts without being licensed as a collection agency as defined by
RCW 19.16.100(2)?

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Id. The Washington State Supreme Court issued an opinion answering the certified
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questions on August 28, 2014. ECF No. 463.
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6. First Motion for Summary Judgment
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In March and April 2015, both the Suttell Defendants and the Midland
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Defendants moved for summary judgment on various causes of action asserted in
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Plaintiffs’ First Amended Complaint. ECF Nos. 480 and 495. Both the Suttell
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Defendants and the Midland Defendants moved for summary judgment on Plaintiff
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Gray’s FDCPA statute-of-limitation claim. ECF Nos. 480 and 495. Judge Shea
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Later changed to “Midland Funding, LLC.” See ECF Nos. 458 and 459.

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granted both motions under 15 U.S.C. § 1692k(c) as the court found that the

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Defendants had made a bona fide error as related to the applicable statute-of-

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limitations. ECF No. 544.

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E. Midland Defendants’ Corporate Structure
The following chart illustrates the relationships between Midland Funding
and its parent companies, the remaining Midland Defendants:

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Encore Capital Group, Inc. (publicly held corporation)

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↓ Owns

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Midland Credit Management, Inc. (licensed collection agency)

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↓ Owns

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Midland Portfolio Services, Inc. (owns 100% of Midland Funding)

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↓ Owns

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Midland Funding, LLC (debt-buying entity that owns the accounts).

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Gray v. Suttell & Associates, 181 Wn.2d 329, 333 (2014). As described by the

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Washington State Supreme Court:

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Midland Funding purchases defaulted receivables, i.e., consumers’
unpaid financial commitments to credit originators such as banks, credit
unions, consumer finance companies, commercial retailers, auto
finance companies, and telecommunications companies. Midland
Funding has no employees and is merely a holding company for the
delinquent accounts it purchases.

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Midland Credit Management . . . services the defaulted accounts on
behalf of Midland Funding. Pursuant to the “Servicing Agreement,”
[MCMI] decides how to collect on the defaulted accounts purchased by
Midland Funding. [MCMI’s] employees manage the collection process
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and perform the collection acts for these defaulted accounts. [MCMI]
is licensed by the State of Washington as a collection agency. To fulfill
its servicing duties, [MCMI] contracts directly with Suttell &
Associates, a law firm, to file collection lawsuits in Midland Funding’s
name. From 2005 to 2010, 1,081 cases were filed in Washington
superior courts naming Midland Funding LLC as plaintiff.

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Id. at 334.
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DISCUSSION
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I. Summary Judgment Standard
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Summary judgment is appropriate when the moving party establishes that
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there are no genuine issues of material fact and that the movant is entitled to
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judgment as a matter of law. Fed. R. Civ. P. 56(a). A party may move for partial
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summary judgment by identifying the specific claim or defense on which summary
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judgment is sought. Id. If the moving party demonstrates the absence of a genuine
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issue of material fact, the burden shifts to the non-moving party to set out specific
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facts showing that a genuine issue of material fact exists. Celotex Corp. v. Catrett,
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477 U.S. 317, 323–25 (1986). A genuine issue of material fact requires “sufficient
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evidence supporting the claimed factual dispute . . . to require a jury or judge to
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resolve the parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v.
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Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). “Where the
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record taken as a whole could not lead a rational trier of fact to find for the non19
moving party, there is no ‘genuine issue for trial.’” Matsushita Elec. Indus. Co. v.
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Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal citation omitted).
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The evidence presented by both the moving and non-moving parties must be

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admissible. Fed. R. Civ. P. 56(c)(2). Evidence that may be relied upon at the

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summary judgment stage includes “depositions, documents, electronically stored

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information, affidavits or declarations, stipulations . . . admissions, [and]

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interrogatory answers.” Fed. R. Civ. P. 56(c)(1)(A). The Court will not presume

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missing facts, and non-specific facts in affidavits are not sufficient to support or

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undermine a claim. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888–89 (1990).

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In evaluating a motion for summary judgment, the Court must draw all

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reasonable inferences in favor of the non-moving party. Dzung Chu v. Oracle

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Corp. (In re Oracle Corp. Secs. Litig.), 627 F.3d 376, 387 (9th Cir. 2010) (citing

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)).

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II. Washington Collection Agency Act
Midland Defendants argue that Plaintiffs’ WCAA claim must be dismissed

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as the WCAA does not create a private cause of action. ECF No. 538 at 8.

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Plaintiffs do not respond to the Midland Defendants’ argument. See ECF No. 573.

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The remedy for a violation of the WCAA is through the WCPA. See

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Genschorck v. Suttell & Hammer, P.S., 12-CV-0615-TOR, 2013 WL 6118678, at

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*3 (E.D. Wash. Nov. 21, 2013). As noted in RCW 19.16.440:

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[t]he operation of a collection agency or out-of-state collection agency
without a license as prohibited by RCW 19.16.110 and the commission
by a licensee or an employee of a licensee of an act or practice
prohibited by RCW 19.16.250 are declared to be unfair acts or practices
or unfair methods of competition in the conduct of trade or commerce
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for the purpose of the application of the Consumer Protection Act found
in chapter 19.86 RCW.

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RCW 19.16.440. “When a violation of debt collection regulations occurs, it
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constitutes a per se violation of the CPA and [Federal Trade Commission Act]
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under state and federal law, reflecting the public policy significance of this
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industry.” Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 53 (2009).
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Therefore, an individual cannot assert a private cause of action under the WCAA.
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See Connelly v. Puget Sound Collections, Inc., 16 Wn. App. 62, 64 n.1 (1976)
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(“Under the Collection Agency Act, it appears that only the attorney general or the
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local prosecuting attorney ‘may bring an action’ to restrain a violation of that act.”)
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(citing RCW 19.16.460). To the extent Plaintiffs attempt to assert a cause of action
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under the WCAA, the Court GRANTS Midland Defendants’ motion for summary
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judgment.
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III.

Washington Consumer Protection Act

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Midland Defendants argue that Mr. Scott’s WCPA claim premised on
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Midland Funding’s not being properly licensed as a “collection agency” fails for
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several reasons: 1) Midland Funding was not required to be licensed as a
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“collection agency” under the WCAA; 2) Midland Funding, even if required to be
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licensed under the WCAA, is entitled to the WCPA good faith exception; and
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3) Mr. Scott has not sustained an “injury to property or business” as required to
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maintain a WCPA cause of action. ECF No. 538 at 8–9.
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To maintain a WCPA cause of action, a plaintiff must demonstrate: (1) an

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unfair or deceptive act or practice by a defendant; (2) occurring in trade or

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commerce; (3) an impact on the public interest; (4) injury to the plaintiff’s business

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or property; and (5) that the defendant’s alleged unfair or deceptive act caused

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plaintiff’s injury. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.,

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105 Wn.2d 778, 784–85 (1986).

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A. WCAA Collection Agency Licensing Requirement
No person may act as a “collection agency” without first having applied for
and obtained a license. RCW 19.16.110. Operating a “collection agency” without a

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license is a per se unfair practice under the WCPA. RCW 19.16.440; see also

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Panag, 166 Wn.2d at 53. The viability of Mr. Scott’s WCPA licensing claim

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depends upon whether Mr. Scott can demonstrate a genuine issue of material fact

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concerning whether Midland Funding was a “collection agency” subject to the

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WCAA.

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1. Gray v. Suttell & Associates
In Gray, the Washington State Supreme Court addressed the definition of
“collection agency” under the WCAA pursuant to Judge Shea’s certified questions.
The WCAA was amended by the legislature in 2013. Prior to the

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amendment, and relevant to Midland Funding as the relevant conduct took place

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under the prior WCAA regime, the WCAA defined a “collection agency” as:

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(a) Any person directly or indirectly engaged in soliciting claims for
collection, or collecting or attempting to collect claims owed or due
or asserted to be owed or due another person;
(b) Any person who directly or indirectly furnishes or attempts to
furnish, sells, or offers to sell forms represented to be a collection
system or scheme intended or calculated to be used to collect claims
even though the forms direct the debtor to make payment to the
creditor and even though the forms may be or are actually used by
the creditor himself or herself in his or her own name;

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(c) Any person who in attempting to collect or in collecting his or her
own claim uses a fictitious name or any name other than his or her
own which would indicate to the debtor that a third person is
collecting or attempting to collect such claim.
Former RCW 19.16.100(2) (2003). The 2013 amendment added the following
subpart:
(d) Any person or entity that is engaged in the business of purchasing
delinquent or charged off claims for collection purposes, whether it
collects the claims itself or hires a third party for collection or an
attorney for litigation in order to collect such claims.

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RCW 19.16.100(2)(d).
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The Washington State Supreme Court found that, prior to the 2013
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amendment, the WCAA was ambiguous as to whether a passive debt buying entity
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was within the scope of “collection agency.” Gray, 181 Wn.2d at 341. Further, the
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court determined that the 2013 amendments merely clarified that such a passive
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debt buyer was a “collection agency,” as opposed to changing the WCAA licensing
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requirements. Id. at 342.
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The Washington State Supreme Court concluded that a debt buyer, such as

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Midland Funding, was within the pre-amendment definition of “collection agency”

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if the debt buyer “solicit[s] claims for collection.” 2 Id. at 343. Turning to the

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ordinary meaning, the court defined “solicit” as “to endeavor to obtain by asking or

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pleading.” Id. at 340 (quoting WEBSTER’S THIRD NEW INTERNATIONAL

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DICTIONARY 2169 (2002)). The court contrasted two alternatives: an entity

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“soliciting claims for collection [which] involves conduct aimed at procuring a

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claim for collection” and “[a] passive market participant.” Id. An entity “solicited

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claims” if the entity “advertise[s] that it is purchasing claims, target[s] individual

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sellers, enter[s] into contracts with sellers to purchase claims, or perform[s]

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market-based research to generate lists used to purchase claims.” Id. However, “if

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a company is formed, sits idle, and never actually solicits or acquires any claims

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the use of the disjunctive “or,” “strongly suggests that there are two types of

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collection agencies.” Gray, 181 Wn.2d at 339. The court defined the two

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categories as an entity that is engaged in “soliciting claims for collection” and an

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entity that is engaged in “collecting or attempting to collect claims owed or due or

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asserted to be owed or due another person.” Id. (quoting RCW 19.16.100(2)(a)).

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The court concluded that a debt buyer can be a “collection agency” even if the

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entity does not “collect claims owed to another.” Id. at 340.

The Washington State Supreme Court noted that RCW 19.16.100(2)(a), through

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for collection, that company has not solicited claims for collection. Nor has a

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company solicited claims if it engaged in no marketing and merely passively

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accepts offers.” Id. at 340–41. The court concluded that “Midland Funding, a debt

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buyer, is a ‘collection agency’ under RCW 19.16.100(2) if the district court finds

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that Midland Funding solicited claims for collection—that is, if Midland Funding

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or its agents took any affirmative steps to obtain claims for collection.” Id. at 341.

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2. Midland Funding, LLC

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Midland Defendants argue that Midland Funding is not a “collection

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agency” as the entity does not “solicit claims for collection.” ECF No. 538 at 11

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(quoting Gray, 181 Wn.2d at 341). Midland Defendants allege that Midland

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Funding is “a passive debt buyer that has no employees and is merely a holding

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company for delinquent accounts.” Id. at 11–12. Mr. Scott contends that MCMI

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employees, acting as Midland Funding’s agents, solicit claims for collection on

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behalf of Midland Funding. ECF No. 573 at 6. Midland Defendants counter that,

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even if MCMI employees are Midland Funding’s agents, summary judgment is

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appropriate as MCMI has been a licensed “collection agency” under the WCAA

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since 2000. ECF No. 576 at 4. Further, Midland Defendants note that the

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undisputed evidence demonstrates that creditors approach MCMI concerning

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purchasing portfolios of accounts, not the other way around. Id. at 5.

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As part of discovery in this matter, Plaintiffs deposed Gregory Gerkin,
MCMI’s Corporate Counsel for Legal Affairs and Compliance. As noted by
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Midland Defendants, Mr. Gerkin testified that creditors contact MCMI inviting

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MCMI to bid on selected portfolios of accounts that are available for sale. ECF

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No. 574-1 at 16. However, as recounted by Mr. Gerkin:

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[i]f the seller then accepts Midland Credit Management’s bid, the
purchase agreement is worked out, and then the – you know, Midland
Credit Management then executes the agreement using Midland
Funding, LLC, as the purchasing entity and then funds it from a
Midland Credit Management bank account from Encore Capital
Group’s credit line.

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Id. at 17. Although selling creditors make initial contact with MCMI, MCMI must
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enter a bid, on behalf of Midland Funding, before any portfolio of accounts is
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purchased. See id.; see also ECF No. 574-2 at 33–34 (MCMI Senior Vice President
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Amy Anuk testified that creditor’s “put out invitation[s] to bid” which cause
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MCMI to “place the bid”).
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Bidding on a portfolio of accounts is distinguishable from “merely passively
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accepting offers” as described by the Washington State Supreme Court. See Gray,
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181 Wn.2d at 341. The former involves MCMI, on behalf of Midland Funding,
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making an offer, or bid, on a selected portfolio of accounts. Affirmatively making
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an offer or bidding on a portfolio is not the equivalent of merely accepting offers
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that a creditor might bring to MCMI. In the first scenario MCMI is the offeror
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while in the second MCMI is the accepting party. The former requires an
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affirmative act while the latter does not.
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Further, as MCMI bids for a portfolio of accounts on behalf of Midland

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Funding, it is conceivable that the MCMI employees are acting as Midland

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Funding’s agents to the extent that the employee is purchasing portfolios of

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account in Midland Funding’s name. Midland Defendants’ corporate structure

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supports this theory. Midland Funding, as a distinct corporate entity, has no

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employees. ECF No. 540 at 3. As Mr. Gerkin testified, “the three primary

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officers . . . are the same for each [Midland] entity.” ECF No. 574-1 at 14. For

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example, Ken Vecchione is both the president and chief executive officer of

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MCMI and the president of Midland Funding. Id. at 20. Mr. Vecchione, as

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president of Midland Funding, “ultimately signs” the purchase agreements with

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creditors for portfolios of accounts. Id. at 21. As Mr. Gerkin described the Midland

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Defendants’ processes when purchasing a portfolio:

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[i]t depends on how you’re describing purchase. Midland Funding,
LLC’s name is put onto the purchase and sale agreement; therefore, we
refer to Midland Funding, LLC, as the purchaser. The money flows
from a Midland Credit Management bank account to the issuer.
Midland Credit Management employees are who facilitate that process.
But no, in a legal sense, Midland Credit Management does not purchase
the accounts. Midland Funding, LLC – Midland Credit Management,
you know, acts as the entity that does the work, but Midland Funding,
LLC’s name is put onto the purchase and sale agreement.

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Id. at 22. As MCMI employees “do[] the work” underlying every purchase made in

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Midland Funding’s name, see id., such employees arguably were Midland

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Funding’s agents for that limited purpose.

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The Court finds that, viewing the facts in the light most favorable to the non-

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moving party, Mr. Scott has demonstrated a genuine issue of material fact

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concerning whether MCMI employees acted as Midland Funding’s agents when

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placing bids on portfolios of accounts. A corporation can “act only through its

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agents.” Houser v. City of Redmond, 91 Wn.2d 36, 40 (1978). As Midland Funding

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has no employees, ECF No. 540 at 3, Midland Funding can only purchase

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portfolios of accounts through MCMI employees. See ECF No. 574-1 at 5 (noting

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that “Midland Funding doesn’t decide or not decide to do anything); ECF No. 576

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at 3 (noting that “it is undisputed that while [Midland Funding] owned Scott’s

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debt, any acts relating to the debt were undertaken by licensed debt collection

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agency [MCMI]”). Although Midland Defendants argue that MCMI “has been a

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licensed ‘collection agency’ under the WCAA since the year 2000,” id. at 4,

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MCMI’s license does not extend to or include Midland Funding, a distinct

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corporate entity which was both the actual purchaser and unlicensed.

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Based on the above, the Court concludes that Mr. Scott has demonstrated a

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genuine issue of material fact concerning whether affirmative acts taken by MCMI

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employees, acting as agents for Midland Funding, resulted in Midland Funding’s

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soliciting claims for collection. Accordingly, the Court will not grant summary

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judgment on the basis that Midland Funding is not a “collection agency” under the

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WCAA.

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//
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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B. Good Faith Defense
Midland Defendants argue that, even if Midland Funding were a “collection

3

agency” operating without a license, Mr. Scott’s WCPA claim fails as Midland

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Funding acted in good faith in complying with the WCAA licensing requirements.

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ECF No. 538 at 12.

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“Acts performed in good faith under an arguable interpretation of existing

7

law do not constitute unfair conduct violative of the consumer protection law.”

8

Leingang v. Pierce Cty. Med. Bureau, Inc., 131 Wn.2d 133, 155 (1997). In

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Leingang, the defendant acted in good faith as prior court decisions had held that

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the uninsured motorist exclusion acted upon by defendant “was clear and

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enforceable and not against public policy.” Id. Further, the Insurance

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Commissioner had reviewed and approved of the uninsured motorist exclusion in

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health care service contracts. Id. at 156. The court held that, as defendant “was

14

advancing an arguable interpretation of existing law,” the defendant was entitled to

15

a good faith defense. Id.

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Other courts have found the good faith defense applicable in similar

17

circumstances. See Watkins v. Peterson Enterprises, Inc., 57 F. Supp. 2d 1102,

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1111 (E.D. Wash. 1999) (finding the good faith defense applicable where the

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defendant’s interpretation was not flatly inconsistent with the text of the statute,

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there were no Washington State appellate decisions indicating that the defendant’s

21

interpretation was incorrect, and state district courts had routinely approved the
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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defendant’s interpretation). To take advantage of the good faith defense, the

2

defendant may have to rely on “an official interpretation of state law.” Campion v.

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Credit Bureau Servs., Inc., CS-99-0199-EFS, 2000 WL 33255504, at *13 (E.D.

4

Wash. Sept. 20, 2000).

5

Midland Defendants argue that MCMI maintained procedures for

6

monitoring licensing requirements and for ensuring that Midland Defendants

7

complied with those licensing requirements. ECF No. 538 at 12–13. Further,

8

Midland Defendants note that they relied upon the Collection Agency Board,

9

which had adopted an interpretation of the WCAA finding that debt buyers were

10

not required to be licensed. Id. at 13; see also ECF No. 540 at 3 (noting the

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Collection Agency Board’s interpretation that debt buyers were not required to be

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licensed under the WCAA). Finally, Midland Defendants argue that the good faith

13

defense applies as the Washington State Supreme Court found the definition of

14

“collection agency” to be ambiguous as to the WCAA’s application to debt buyers.

15

ECF No. 576 at 7.

16

Mr. Scott argues that the good faith exception does not apply to acts that

17

have been declared per se unfair for the purpose of the WCPA. ECF No. 573 at 8.

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Alternatively, Mr. Scott counters Midland Defendants’ good faith defense by

19

noting that “[t]he Collection Agency Board’s 2009 interpretation was non-binding

20

and non-precedential” and “Defendants had no basis to rely on the Collection

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Agency Board’s interpretation.” ECF No. 575 at 3.
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Under RCW 19.16.440, the operation of a “collection agency” without a

2

license, in addition to the commission of an act enumerated in RCW 19.16.250, is

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an “unfair act[] or practice[] or unfair method[] of competition . . . for the purpose

4

of the application of the Consumer Protection Act.” RCW 19.16.440. In Watkins,

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the court found that, as RCW 19.16.440 says nothing about deception, the statute

6

does not create a per se unfair or deceptive practice. Watkins, 57 F. Supp. 2d at

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1111. The Court disagrees with Watkins’ conclusion.

8
9

In Hangman, the Washington State Supreme Court stated that “[a] per se
unfair trade practice exists when a statute which has been declared by the

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Legislature to constitute an unfair or deceptive practice in trade or commerce has

11

been violated.” Hangman, 105 Wn.2d at 786. As examples, the court cited statutes

12

using language including “an unfair or deceptive act in trade or commerce” or

13

“unfair trade practice.” Id. RCW 19.16.440 states that operating a collection

14

agency without a license is “declared to be unfair acts or practices or unfair

15

methods of competition in the conduct of trade or commerce.” RCW 19.16.440.

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The Court finds that the legislative decree finding the operation of a

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“collection agency” without a license an “unfair act . . . for the purpose . . . of the

18

Consumer Protection Act” is sufficiently similar to the description of per se unfair

19

acts in Hangman. The Washington State Supreme Court has adopted a similar

20

interpretation. See Panag, 166 Wn.2d at 53 (“When a violation of debt collection

21

regulations occurs, it constitutes a per se violation of the CPA and [Federal Trade
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1

Commission Act] under state and federal law, reflecting the public policy

2

significance of this industry.”).

3

As noted above, “[a]cts performed in good faith under an arguable

4

interpretation of existing law do not constitute unfair conduct violative of the

5

consumer protection law.” Leingang, 131 Wn.2d at 155. However, the Washington

6

legislature has, by statutory enactment, deemed the operation of a “collection

7

agency” without a license to be a per se unfair act. RCW 19.16.440. Thus, even if a

8

defendant “collection agency” acted in good faith, the “collection agency’s” lack

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of a WCAA license is nevertheless an unfair act for the purpose of the WCPA. The

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Court concludes that, as pertains to the WCAA “collection agency” licensing

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requirement, Midland Defendants cannot utilize the good faith exception because

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Mr. Scott alleges a per se unfair act.

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C. Injury to Business or Property
Midland Defendants argue that Mr. Scott has not suffered any “injury to

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business or property” as Midland Defendants have not collected the attorney’s fee

16

judgment, and any wage garnishment was collected solely on Mr. Scott’s

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underlying debt. ECF No. 538 at 9–10; ECF No. 576 at 5–6. Mr. Scott argues that

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Midland Funding’s failure to properly license under the WCAA renders any

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garnishment of wages illegal. ECF No. 573 at 12–14.

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21

Judge Shea previously held that “[t]o the extent that Mr. Scott alleges an
injury as a result of the garnished amount based solely on the underlying debt and
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interest thereon, Mr. Scott fails to allege an injury to business or property.” ECF

2

No. 416 at 13. Judge Shea cited two decisions as persuasive authority, Flores v.

3

The Rawlings Co., LLC, 117 Hawaii 153 (2008), and Camacho v. Automobile Club

4

of Southern California, 142 Cal. App. 4th 1394 (2006). In Flores, the court found

5

that although defendant’s collection activities might have violated state statutes,

6

the plaintiffs were not injured by paying the underlying debt because the debt was

7

valid. Flores, 117 Hawaii at 157. In Camacho, the court determined that the

8

plaintiff could not establish an injury from allegedly unfair collection practice

9

where he conceded liability and owed the amounts that were collected. Camacho,

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142 Cal. App. 4th at 1405.

11

Mr. Scott argues that the decisions cited by Judge Shea are distinguishable

12

as the cases each involved voluntary payments on the underlying debt as opposed

13

to forcible, illegal garnishment of wages. ECF No. 573 at 13. As discussed above,

14

the Court has determined that a genuine issue of material fact exists concerning

15

whether Midland Funding is a “collection agency” under the WCAA. If Midland

16

Funding is a “collection agency,” the WCAA requires that Midland Funding be

17

licensed in order to enter judgments against debtors and issue writs of garnishment.

18

Therefore, if Midland Funding is an unlicensed “collection agency” any

19

garnishment of Mr. Scott’s wages would have been illegal. As such, the Court

20

finds that a genuine issue of material fact exists as to whether Mr. Scott suffered an

21

injury to property. If Midland Funding illegally garnished Mr. Scott’s wages, any
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
SUMMARY JUDGMENT ~ 22

1

amount collected could amount to an “injury” as Midland Funding would have had

2

no right to utilize a writ of garnishment mechanism to collect the underlying debt,

3

even if that debt was not disputed. Further, Mr. Scott could have suffered other,

4

non-monetary injuries as a result of the illegal garnishment which may be

5

considered “injuries to business or property” under the WCPA.

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8
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D. Conclusion
For the reasons discussed above, the Court DENIES Midland Defendants’
motion for summary judgment on Mr. Scott’s WCPA licensing cause of action.
IV.

Federal Debt Collection Practices Act

Midland Defendants argue that the First Amended Complaint fails to assert

11

an FDCPA claim related to WCAA “collection agency” licensing and, to the extent

12

such claims are raised, the cause of action should be dismissed as Midland

13

Defendants are entitled to the FDCPA bona fide error defense. ECF No. 538 at 2,

14

14. Midland Defendants are correct that Plaintiffs did not allege an FDCPA claim

15

related to licensing in the First Amended Complaint. See ECF No. 297 at 48–50.

16

However, Plaintiffs do raise an FDCPA claim related to licensing in the proposed

17

Second Amended Complaint. See ECF No. 472-1 at 83. As such, the Court

18

DENIES WITH RIGHT TO RENEW Midland Defendants’ motion for summary

19

judgment on Plaintiffs’ FDCPA licensing cause of action. Midland Defendants

20

may reassert the motion if and when the Second Amended Complaint becomes the

21

operative pleading in this matter.
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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CONCLUSION

2

Accordingly, IT IS HEREBY ORDERED that Midland Defendants’

3

Second Motion for Summary Judgment, ECF No. 538, is GRANTED IN PART

4

and DENIED IN PART. Plaintiffs’ WCAA cause of action is dismissed with

5

prejudice. Mr. Scott may proceed with his WCPA licensing cause of action.

6

Midland Defendants may renew their motion concerning Plaintiffs’ FDCPA

7

licensing cause of action if and when Plaintiffs’ proposed Second Amended

8

Complaint becomes the operative pleading in this matter.

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The District Court Executive is directed to enter this Order and provide
copies to counsel.
DATED this 2nd day of February, 2016.

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s/ Rosanna Malouf Peterson
ROSANNA MALOUF PETERSON
United States District Judge

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ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR
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