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5th Cir. Holds Debt Collector Affiliate of Debt Buyer Still FDCPA ‘Debt Collector’

In a recently issued unpublished opinion, the U.S. Court of Appeals for the Fifth Circuit rejected the argument of the attorney defendant who owned a law firm and a debt-buying company that he was exempt under the federal Fair Debt Collection Practices Act (FDCPA) because he was a creditor “by proxy.”

Specifically, the Fifth Circuit determined that the attorney, his law firm, and his debt-buying company were all distinct entities as a matter of law, such that his argument that he, as the owner of the debt-buying company, owned the debt and thus he did not qualify as a debt collector under the FDCPA, failed.

The Fifth Circuit also rejected the attorney’s argument that the plaintiff had not sufficiently established that a “debt” covered by the FDCPA was being collected.  Under the FDCPA, a covered debt is any “obligation or alleged obligation,” and the attorney’s demand letters to the plaintiff and the complaint filed easily established an alleged obligation.

Because the attorney was a debt collector, and the debt at issue was covered by the FDCPA, the Fifth Circuit affirmed the trial court’s award of the plaintiff’s motion for summary judgment.

A copy of the opinion in Infante v. Law Office of Joseph Onwuteaka, PC is available at:  Link to Opinion.

The defendant was an attorney and the sole owner of his law firm.  He and his wife also owned a limited liability company that was in the business of buying debts and then referring them to the law firm for collection.

Between 2008 and 2012, the defendant filed nearly 2,000 cases on his company’s behalf, many of which were against debtors who lived far away from Houston, where he filed the lawsuits.  The attorney was such a frequent filer of lawsuits that the court in Houston had given him his own “frequent filer” number.

The defendant’s filing tactics eventually landed him in controversy.  The Fifth Circuit noted this was not their first encounter with him.  In particular, in 2015 the Fifth Circuit affirmed a judgment against the attorney for violations of federal consumer protection laws, including an award of $1,000 in statutory damages and over $72,000 in fees and costs.  Moreover, according to the Fifth Circuit, in 2017 the State of Texas secured a $25 million judgment against him in state court, along with over $500,000 in attorneys’ fees.

For the case that formed the basis of this opinion, shortly after the State of Texas filed its lawsuit against the defendant, his law firm initiated a lawsuit against the plaintiff, who resided far away from Houston.  The plaintiff enlisted the services of a legal aid organization and filed an answer to the defendant’s complaint.  Approximately six months after the plaintiff filed her answer, the defendant non-suited the matter.

The plaintiff then sued the attorney, his law firm, and his debt-buying company, alleging violations of the FDCPA.  The defendants filed a motion to dismiss and a motion for summary judgment, and the plaintiff filed her own motion for summary judgment.

The trial court denied the defendants’ motions, and granted the plaintiff’s motion for summary judgment.  The lower court conducted a trial on damages and ultimately awarded the plaintiff the maximum of $1,000 in statutory damages.  The defendant attorney and law firm appealed.

On appeal, the Fifth Circuit identified the four issues the defendants raised on appeal.

First, the defendants argued that they were not a “debt collector” under the FDCPA.  For their second and third arguments, the defendants asserted that two of the statutory exceptions to the “debt collector” definition applied.  And for the fourth argument, the defendants asserted that the plaintiff had not sufficiently established a covered debt under the FDCPA.

As to the second and third arguments, the Court concluded the defendants had forfeited those arguments on appeal because the attorney had not adequately developed any arguments or facts regarding how the exceptions applied.  The Court noted that the defendants had not only failed to adequately develop their arguments during the lower court briefing, but the Court had admonished the defendant attorney in a prior case that it was his responsibility to articulate his arguments and provide evidence to support them, and he had again failed to do so here.  The Court concluded “[defendant] once again asks this court to consider half-baked arguments devoid of legal citation or factual support.” Thus, his second and third arguments failed.

In addressing the defendants’ first argument that they were not debt collectors under the FDCPA, the Court, relying on the statutory definitions, established that there are two types of debt collectors: those whose “principal purpose” is debt collection, and those who “regularly collect” debts of others.  See 15 U.S.C. § 1692a(6).  A “creditor,” the Fifth Circuit held, is one “who offers or extends credit creating a debt or to whom a debt is owed.” See 15 U.S.C. § 1692(4).

While the summary judgment motions were pending, the Supreme Court held that debt purchasers who collect for their own accounts are not “debt collectors” under the “regularly collects” alternative.

On appeal, the attorney argued that he should be deemed a “creditor” under the FDCPA “by proxy.”  Specifically, he argued that the debt-buying company owned the debt, and he owned the company, and therefore he owns the debt.  Based on this argument, the attorney asserted he was not attempting to collect the debt of another.

The Fifth Circuit rejected this argument, stating it “defies logic.”  Under Texas law, the attorney, his law firm and the limited liability company are all distinct entities.  Although the attorney could have purchased the debt himself, he instead chose to have his limited liability company purchase it.  And, as a matter of Texas law, the members of a limited liability company do not have any interest in the property of the company.

Finally, the Court added, two demand letters the defendant sent to the plaintiff contained a disclaimer stating it was an attempt to collect a debt by a debt collector, so the attorney was attempting to collect the debt of another. Accordingly, the Court rejected the attorney’s argument that he was a creditor by proxy.

As to the defendants’ final argument, that the plaintiff has not sufficiently established a debt covered by the FDCPA, the Court rejected this argument.  Under the FDCPA, a debt is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes.” See 15 U.S.C. § 1692a(5).

The Court criticized the defendants’ argument and the “semantic game” the attorney was playing by attempting to assert the plaintiff had failed to adequately prove a debt covered by the FDCPA.

First, the Fifth Circuit noted, the FDCPA applies to any “alleged debt,” and it was undisputed the defendants had sent two demand letters to the plaintiff and filed a lawsuit stating she owed a debt and demanding payment.  In addition, the plaintiff produced two retail installment contracts with the original creditor.  Because the FDCPA covers alleged debts, the defendants’ fourth argument also failed.

The Court was very critical of the defendants’ arguments, their history of violating consumer protection laws, and their attempts to engage in semantics.  As a matter of law, the Fifth Circuit noted, the defendant attorney and law firm did not own the debt at issue, and defendants’ own evidence established there was an “alleged debt” covered by the FDCPA.  Accordingly, the Fifth Circuit affirmed summary judgment in favor of the plaintiff.

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Mickey Lee practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Employment Litigation groups. He has substantial experience representing clients in class action litigation, Fair Credit Reporting Act litigation, labor and employment law, and various types of commercial litigation. He has co-chaired several bench and jury trials in state and federal court and has authored numerous appellate briefs and argued numerous cases before the Indiana Court of Appeals and the United States Court of Appeals for the Seventh Circuit. He is Vice President of the Indianapolis Chapter of the Federal Bar Association, and a Board member of the Johnson County Indiana University Alumni Association. Mickey and his wife, Melissa, are active members of the Riley Society with the Riley Children’s Foundation and the Mended Little Hearts of Indianapolis. Mickey received his Juris Doctor from the Indiana University Robert H. McKinney School of Law, and obtained his Bachelor of Science degree from Indiana University – Bloomington.

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