7th Cir. Rejects FDCPA Claims That Illinois Wage Garnishments Are Actions ‘Against Consumer’

The U.S. Court of Appeals for the Seventh Circuit recently held that a wage garnishment action under Illinois law is not a legal action “against a consumer” under the federal Fair Debt Collection Practices Act (FDCPA).

Accordingly, the Court held, an Illinois wage garnishment action need not be pursued only in the judicial district in which the debtor signed the debt agreement, or in which the debtor currently resides, under 15 U.S.C. § 1692i(a)(2).

A copy of this opinion in Etro v. Blitt & Gaines, P.C. is available at:  Link to Opinion.

Two Illinois debtors filed similar complaints against a debt collector in the U.S. District Court for the Northern District of Illinois, alleging that the debt collector violated the FDCPA by filing wage garnishment actions against the debtors’ employers in a judicial district where the debtors did not live.

In both cases, the debt collector obtained default judgments against each of the debtors. In each case, the debt collector then filed wage garnishment actions in the First Municipal District in downtown Chicago and obtained summonses against the debtors’ respective employers.

In their complaints, both debtors argued that the debt collector’s filing of the wage garnishment action in the district closest to the employers violated the FDCPA’s venue provision, 15 U.S.C. § 1692i(a)(2), because, according to the debtors, the debt collector should have filed the wage garnishment actions in the municipal district in which the debtors resided.

The debt collector moved to dismiss the debtors’ complaints on the basis that its filing of an affidavit for a wage deduction did not constitute a “legal action” against a “consumer” within the meaning of the FDCPA. The trial courts agreed with the debt collector and granted its motions to dismiss the debtors’ complaints. The debtors appealed and consolidated their appeals.

As you may recall, 15 U.S.C. § 1692i(a)(2) is aimed at preventing debt collectors from filing claims against consumers in improper venues. The debtors filed their complaints relying on 15 U.S.C. § 1692i, which provides in relevant part that “[a]ny debt collector who brings any legal action on a debt against any consumer shall … bring such action only in the judicial district or similar legal entity—(A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action.” 15 U.S.C. § 1692i(a)(2).

The parties here did not dispute that: (1) each debtor qualified as “consumer” under the FDCPA; and (2) the defendant was a “debt collector” under the FDCPA. The sole issue on appeal was whether the debt collector’s wage garnishment actions constituted a “legal action … against any consumer” under § 1692i.

On appeal, the Seventh Circuit first determined the plain meaning of “legal action,” which is not defined in the FDCPA. Basing its interpretation on Black’s Law Dictionary, which was in effect at the time the FDCPA was enacted, and on the Ninth Circuit’s rulings in S&M Inv. Co. v. Tahoe Reg’l Planning Agency, 911 F.2d 324, 327 (9th Cir. 1990), and Fox v. Citicorp Credit Svcs., Inc., 15 F.3d 1507, 1515 (9th Cir. 1994).  The Seventh Circuit concluded that “legal action” under § 1692i means all judicial proceedings.

The Seventh Circuit then turned its attention to the meaning of the phrase “against any consumer” in 15 U.S.C. § 1692i(a)(2).

The debtors argued that the Seventh Circuit should interpret wage garnishment actions under Illinois law as being directed at the underlying judgment debtor and not their third-party employers because the statutory scheme requires that judgment debtors receive notice and an opportunity to contest responses given by their employers during the proceedings.

The Seventh Circuit rejected the debtors’ argument, holding that the focus of the Illinois wage deduction scheme is on the third-party employer, not the judgment debtor.

The Seventh Circuit held that, first, the summons is issued against the employer, not the debtor, and must be served upon the employer and a judgment debtor is only entitled to notice via U.S. mail. 735 ILCS 5/12?805(a).

Second, in Illinois, the debt collector serves interrogatories upon the employer who then must respond to them under oath. 735 ILCS 5/12?808(c).

Third, although “the debtor receives a copy of the employer’s answered interrogatories and may contest those answers or request a hearing to dispute whether certain wages are exempt, the only response that is necessary for the action to continue the action is the employer’s. 735 ILCS 5/12-811(a)–(b). In other words, the judgment debtor is not a necessary participant.”

Fourth, the Illinois employer may be found liable if it does not comply with the wage garnishment process, including having a conditional judgment entered against it if it fails to appear and answer in response to a summons, 735 ILCS 5/12-807(a). The Seventh Circuit observed that no such penalty exists for the judgment debtor.

Finally, the Seventh Circuit concluded that wage garnishment actions must be filed in the county where the third party employer resides, regardless of the judgment debtor’s residence. Ill. S. Ct. R. 277(d).

Due to these characteristics of an Illinois wage garnishment action, the Seventh Circuit concluded that a wage-garnishment action is a legal proceeding against an employer, not a consumer.

The Seventh Circuit based its conclusion both on precedent and the purpose behind the FDCPA. The Seventh Circuit relied on Smith v. Solomon & Solomon, P.C., 714 F.3d 73, 75 (1st Cir. 2013), in which the First Circuit analyzed a similar Massachusetts wage deduction scheme and concluded the action was “geared toward compelling the [employer] to act, not the debtor.” 714 F.3d at 76. There, the Massachusetts wage deduction scheme, like Illinois’s regime, required the summons to be issued against the employer and filed in the county where the employer resides. Id. at 75– 76. Like the Illinois scheme, the Massachusetts regime required that the debtor receive notice and “an opportunity to contest.” Id. at 76.  The Seventh Circuit also noted that the Eighth Circuit, when analyzing the same Illinois wage garnishment scheme in Hageman v. Barton, 817 F.3d 611, 618 (8th Cir. 2016), also concluded the action was not “against any consumer.”

The Seventh Circuit also noted that the Federal Trade Commission’s 1988 commentary on the FDCPA provides “[i]f a judgment is obtained in a forum that satisfies the requirements of [15 U.S.C. § 1692i], it may be enforced in another jurisdiction, because the consumer previously has had the opportunity to defend the original action in a convenient forum.” Id. (quoting Statements of General Policy or Interpretation Staff Commentary On the Fair Debt Collection Practices Act, 53 Fed. Reg. 50,097, 50,109 (Dec. 13, 1988)).

The Seventh Circuit also noted that the debtors had a chance to defend themselves in a venue that was considered appropriate under its interpretation of § 1692i at the time the suits were filed. At that time, Newsom v. Friedman, 76 F.3d 813 (7th Cir. 1996) was still good law in the Seventh Circuit. Under Newsom, Illinois circuit courts constituted a “judicial district” within the meaning of § 1292i, rejecting the Newsom plaintiff’s interpretation there that Cook County Circuit Court’s Municipal Department’s smaller units—the municipal district—could constitute a “judicial district or similar legal entity,” which, if accepted, would have required debt collectors to file their complaints in the proper municipal district.

Therefore, the Court noted that under Newsom, debt collectors would not have violated the FDCPA’s venue provision if they filed their complaint against a debtor in any municipal district in Cook County, so long as the resident resided in Cook County or the consumer signed the contract being sued upon in Cook County. The Court explained that this is what the creditors in this case did when they filed suit in Cook County Circuit Court against the debtors who were Cook County residents. The Seventh Circuit noted that it was irrelevant in Newsom that the creditors filed their complaints against the plaintiffs in the First Municipal District and not the Sixth Municipal District.

The Seventh Circuit also noted that Newsom remained intact until it was overruled in Suesz v. Med-1 Solutions, LLC, 757 F.3d 636 (7th Cir. 2014) (en banc). Under Suesz, debt collectors must now file in the proper municipal district within Cook County Circuit Court.  That decision was issued in July 2014, which the Seventh Circuit noted was too late for the debtors in this case, because the one-year statute of limitations had already run on their FDCPA claims. 15 U.S.C. § 1692k(d).

Although Suesz was made retroactive, 757 F.3d at 649–50, the Court held Suez did not invalidate the FDCPA’s statute of limitations and bring to life claims for which the limitations period had long run. The Seventh Court, relying on Soignier v. Am. Bd. of Plastic Surgery, 92 F.3d 547, 553 (7th Cir. 1996), refused to circumvent the important policies underlying a statute of limitations, which include “rapid resolution of disputes; repose for those against whom a claim could be brought; avoidance of litigation involving lost evidence or distorted testimony of witnesses.”

The debtors also argued that the Seventh Circuit should embrace the reasoning of Adkins v. Weltman, Weinberg & Reis Co., L.P.A., No. 2:11-CV-00619, 2012 WL 604249 (S.D. Ohio Feb. 24, 2012), in which the district court analyzed the Ohio wage garnishment regime and determined that “[o]nly the judgment creditor and the judgment debtor have any beneficial interest at stake in a garnishment action” and that the employer is only a “nominal ‘defendant.’”

The Seventh Circuit rejected the debtors’ argument, noting that there was a key feature that differentiated Illinois’s regime from the Ohio regime — to file a wage garnishment action in Illinois, a debt collector must file it in the county where the third party employer resides. Ill. S. Ct. R. 277(d).

Under Illinois law then, if, for example, the judgment debtor lived in Boone County and executed the contract at issue in Boone County and the debtor’s employer resided in Winnebago County, the debt collector would never be able to garnish the debtor’s wages without violating the FDCPA.

Noting that the FDCPA was created to prevent abusive debt collection practices, not to prevent law abiding debt collectors from collecting on legally enforceable debts, the Seventh Circuit declined to adopt interpretation of the unpublished decision of Adkins.  

Accordingly, the Seventh Circuit affirmed the district courts’ judgments dismissing the debtors’ complaints.

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