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Colorado Fed. Court Holds Statements Directed to Non-Debtor Third Parties May Violate FDCPA

The U.S. District Court for the District of Colorado recently denied a debt collector’s motions to dismiss FDCPA allegations that the debt collector’s statements made to the borrower’s attorney during settlement negotiations and statements made to the state court in court filings constitute a violation of the FDCPA, ruling that “none of the provisions implicated in [the borrower’s] claim should be dismissed on the basis that the alleged abusive conduct was communicated to third parties other than the consumer.”

A copy of the opinion in Chung v. Lamb is available at: Link to Opinion.

The debt collector’s employee contacted the borrower trying to collect.  In an underlying state court action to recover the amounts due, the parties discussed a settlement agreement via phone and email.  The parties reached a settlement agreement that did not include a provision releasing the debt collector from future claims.

Subsequent to the parties’ agreement, the debt collector sought to add a provision releasing it from all future claims.  The borrower refused, asserting that a final agreement had already been reached.  The state court granted the borrower’s motion to enforce the settlement agreement.

Almost a year later, the borrower filed an FDCPA claim, asserting that the debt collector’s activities violated the FDCPA.  Specifically, the borrower alleged that the debt collector pursued legal action against her even after the settlement agreement was reached; it refused to accept the borrower’s tendered payment in full performance of her obligations under the settlement agreement; it misrepresented to the Court that no settlement agreement had been reached and that the debt was still owed; and, it failed to include in the state court status report that the borrower attempted to pay the settlement agreement amount.

The borrower also alleged that the debt collector violated the FDCPA by “falsely informing the police that [the borrower’s] counsel had attempted to remove the original note from his office and falsely informing police that [the borrower] had no grounds for asserting her right to retain possession” of the note.  The borrower sought damages, punitive damages, and attorney’s fees.

As you may recall, to assert a claim under the FDCPA, a borrower must show that (1) she is a consumer under the Act; (2) the debt is one for personal, family, or household purposes; (3) the defendant is a debt collector under the Act; and (4) the defendant violated a provision of the FDCPA.

Here, the debt collector argued that, in order to meet the first element, the borrower must show that the alleged misrepresentations or threats of arrest or legal action were made to a “consumer.” The debt collector argued that, because the alleged communications were made to the borrower’s attorney, the state court judge, and to police officers, the borrower could not maintain a claim against the debt collector for any FDCPA violations. Accordingly, the debt collector argued that the sole issue before the Court is “whether an alleged misstatement to an attorney representing a party or to the court is cognizable under the FDCPA.”

The debt collector relied upon a Tenth Circuit ruling for support.  In Dikeman v. National Educators, a debt collector did not include in communications to the consumer’s lawyer a verification disclosing that the debt collector was attempting to collect a debt and that any information obtained would be used for that purpose.  The Court noted in a footnote that a lawyer acting as the representative of a consumer is not a consumer under the FDCPA.  Dikeman v. Nat’l Educators Inc., 81 F.3d 949, 955 n.14 (10th Cir. 1996).  However, in the next footnote, the Court noted that it was limiting its holding to the facts of that case and its specific application to 1692e(11), a provision which is not implicated in the present case.

However, the district court here found more instructive a recent ruling by another judge in the U.S. District Court for the District of Colorado.  In Schendzielos v. Silverman, a consumer brought an action against a debt collector for violations of the FDCPA.  The debt collector in the other case brought an action in state court for the amounts owed by the consumer.  Prior to trial, the parties settled, and the consumer agreed to pay the bank a settlement amount.  After the consumer allegedly failed to pay the settlement amount, the debt collector filed a motion for a default judgment against him.

The consumer in Schendzielos alleged that the debt collector made misrepresentations to the court in violation of the FDCPA about the status of the debt, including a failure to mention that the consumer had attempted to pay for the alleged default, and for falsely representing to the court that the consumer was in default.  The debt collector filed a motion to dismiss on the theory that “a false statement violates the FDCPA only if it is made to the consumer . . . [and that] a false statement made to a state court judge is not actionable” under the FDCPA.  Schendzielos v. Silverman, 2015 WL 5964882, at *2 (D. Colo. Oct. 14, 2015).

The court in Schendzielos held that the FDCPA prohibits abusive conduct in the name of debt collection, even when the audience for such conduct is someone other than the consumer.  The Schendzielos court noted that “the express purpose of the FDCPA is very broad,” and that “no language in [section 1692e] reserves this ban [of abusive conduct] for communications made only to consumers nor is there any express exemption of a debt collector’s communications to a judge.”  Id. at *3.  The court in Schendzielos further held that section 1692e “should be read to prohibit any deceptive representation if it is made during the process of debt collection without regard for the identity of the audience.”  Id.

The court in Schendzielos noted that in other sections of the FDCPA, Congress expressly limited its breadth by distinguishing between consumers and third parties as audiences. Id. (noting that section 1692c narrowly confines the audience to consumers only; and 1692b defines the audience as any person other than the consumer).

The Court in this case was further persuaded by the Schendzielos holding that “[g]iven the central role that judges play in debt collection, it would in my view be incongruous to permit debt collectors more latitude solely because they are communicating to a judge. The involvement of a judge does not change the essence of the dynamic: the debt collector is attempting to collect a debt owed by the consumer. In that process, there are many opportunities for abusive practices, which Congress so clearly intended to eliminate.”  Id. at *7.  Additionally, the FDCPA is a remedial statute, which “should be construed liberally in favor of the consumer,” and “the importance of prohibiting false or deceptive representations does not fade solely because the collector is speaking to the judge and not directly to the consumer.”  Id.

In this case, the borrower alleged violations of FDCPA provisions 1692d, 1692e(2)(a), 1692e(5), 1692e(8), 1692e(10), and 1692f.  The Court held that section 1692e, 1692d, and 1692f does not include any limitation on the audience of abusive conduct.  Specifically, section 1692d states “[a] debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”  Section 1692f states “[a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.”

Here, the borrower alleged that the debt collector violated section 1692d by “threatening to — and attempting to — force [the borrower] into a trial on an alleged debt that had already been resolved through a settlement agreement.”  She alleged that the debt collector violated section 1692e(2)(a) by portraying the status of the debt as not being settled, and therefore, falsely inflating the amount of debt owed.  She also alleged that the debt collector violated section 1692e(5) by threatening legal action to pursue a debt that was already settled, and by refusing to accept her payment of the settlement amount.  The consumer further alleged that the debt collector violated section 1692e(8) by falsely advising the court that the debt remained subject to collection.  The debtor also alleges that the debt collector violated section 1692e(10) by misrepresenting to the court the status of the negotiations in its state court status report.  Finally, the borrower alleged that the debt collector violated section 1692f by falsely informing the police that her attorney had attempted to remove the original note from the debt collector’s office and that she had no right to do so.

The U.S. District Court for the District of Colorado here ruled that all of the debt collector’s alleged conduct was in connection with debt collection activity, as the debt allegedly owed by the borrower, which was resolved through a settlement agreement.  The Court held that the borrower’s allegations implicated conduct that Congress sought to eliminate “across the entire debt collection landscape,” which can necessarily include various audiences other than the consumer herself.

The Court concluded that “[i]n accordance with case law on this matter, and in the interest of liberally construing the FDCPA in favor of the consumer, I find that none of the provisions implicated in [the borrower’s] claim should be dismissed on the basis that the alleged abusive conduct was communicated to third parties other than the consumer.”

Accordingly, the U.S. District Court for the District of Colorado denied the debt collector’s Motion to Dismiss.

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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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