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Third Circuit Holds Debt Collector Bears Burden of Proving FDCPA Exception to Third Party Contact

3d-cirThe U.S. Court of Appeals for the Third Circuit recently held, in a matter of first impression among all of the Courts of Appeals, that a debt collector bears the burden of proving that a communication with a third party falls within the exception for location information contained in subsection 1692b of the federal Fair Debt Collection Practices Act (FDCPA).

A copy of the opinion is available at: Link to Opinion.

In 2005, a borrower obtained a loan in the amount of $43,300 secured by a mortgage. The mortgage went into default in 2011.

The borrower called the mortgage servicer using her daughter’s cell phone, after which the servicer made numerous calls to the daughter’s number until the borrower told it to stop.

In August 2012, after failing to reach the borrower, the servicer began calling the borrower’s neighbors, one of whom passed on the servicer’s contact information to the borrower. After several more calls and messages, the neighbor told the servicer that the borrower had moved and asked it to stop calling. Upon learning of this, the borrower sued, alleging that these communications with third parties violated subsections 1692b-c of the FDCPA.

As you may recall, the FDCPA prohibits a debt collector from contacting third parties while attempting to collect a debt, with limited exceptions.  One of the exceptions is for communications made “for the purpose of acquiring location information about the consumer.”  However, a debt collector cannot “communicate with any such person more than once … unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information.”

The district court ruled in limine — and also instructed the jury — that where a debt collector claims that its conduct falls within the location information exception, it bears the burden of proving the exception as an affirmative defense.

The jury returned a verdict in the borrower’s favor, and the district court entered judgment in her favor for $1,000, from which the servicer appealed.

On appeal, the Third Circuit began its discussion by noting that “[n]one of our sister Circuits has yet addressed the question whether the consumer has the burden of disproving this exception as part of its case-in-chief, or whether the debt collector carries the burden of proving the exception as an affirmative defense, and the district courts have taken divergent approaches.”

Because the text of the FDCPA is silent on who bears the burden of proof, the Third Circuit began “with the ordinary default rule that plaintiffs bear the risk of failing to prove their claims.”

However, the Court rejected the servicer’s argument that its inquiry should end there, reasoning that “when both a statute and its legislative history are silent on the question of the burden of proof, … no single principle or rule solves all cases by setting forth a general test.”

The Third Circuit then reasoned that decisions of the U.S. Supreme Court and other Courts of Appeals established that it should consider the following factors: “(1) whether the defense is framed as an exception to a statute’s general prohibition or an element of a prima facie case; (2) whether the statute’s general structure and scheme indicate where the burden should fall; (3) whether a plaintiff will be unfairly surprised by the assertion of a defense; (4) whether a part is in particular control of information necessary to prove or disprove the defense; and (5) other policy or fairness considerations.”

As to the first factor, the Court found no compelling reason to deviate from the general rule of statutory construction that a party seeking shelter in a statutory exception — here the servicer — has the burden to prove it.

As to the second factor, the Third Circuit stated the FDCPA’s structure, particularly by analogy to the “good faith error defense” contained in FDCPA subsection 1692k(c), led it to conclude that the servicer bore the burden of proof because the location information exception was intended to be an affirmative defense.

Turning to the third factor, the Court reasoned that a plaintiff consumer would be unfairly surprised and unduly prejudiced if the defendant servicer was not required to specifically raise the location information exception as an affirmative defense because the consumer “will need to explore the debt collector’s knowledge and intent” and “change her discovery and trial strategy to prove that the debt collector was not seeking location information, or, in a follow-up call, did not have a reasonable belief that the earlier information was incorrect and likely to be corrected.”

As to the fourth factor, the Third Circuit held that the servicer “has unique access to the information at issue: its purpose for making the calls to third parties and its basis, if any, when making follow-up calls, to reasonably believe the third parties did not originally provide and later had correct or complete information.”

The Court relied upon the general rule of statutory construction that where the facts regarding a legal issue are within the control of a party, it has the burden of proving the issue, as well as the Federal Communications Commission’s declaratory ruling that the creditor bears the burden of proving consent under the Telephone Consumer Protection Act, in concluding that the same rationale applies to the FDCPA.

Turning to the fifth and last factor, the Third Circuit reasoned that placing the burden of proof on the debt collector “is even more compelling when considered in the context of Congress’s concern, expressly stated in 15 U.S.C § 1692(a), with the ‘invasions of individual privacy’ of consumers.”

According to the Court, shifting the burden to the consumer “would be inconsistent with the Act’s remedial purpose” and the Court’s “duty to construe it broadly” because a consumer would have to endure the embarrassment of calls to neighbors and other third parties without any means of proving the FDCPA was violated “unless those third parties took copious notes or recalled the conversations in detail or the debt collector offered up testimony or documentary proof of its own violation in discovery.”  The Court noted that doing so would be tantamount to requiring the consumer to prove a negative, which is next to impossible.

Finding that the district court’s jury instruction and in limine ruling properly placed the burden of proof on the debt collector, the Third Circuit affirmed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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