The U.S. Court of Appeals for the Eighth Circuit recently affirmed a trial court’s dismissal of the plaintiffs’ claims in consolidated cases brought under the federal Fair Debt Collection Practices Act against a debt collector law firm, after the debt collector law firm failed to meet evidentiary burdens in various collection lawsuits.
In so ruling, the Eighth Circuit held that the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation,” and a party does not violate the FDCPA by articulating its “good faith legal position” in its “prayer for relief.” Here, (1) the plaintiffs failed to establish that the defendant took anything other than a good faith legal position in its prayer for relief; and (2) the debt collector was entitled to bring a good faith claim to collect alleged debts, despite ultimately not meeting its evidentiary burden in court.
A copy of the opinion in Smith v. Stewart, Zlimen & Jungers, Ltd is available at: Link to Opinion.
In December 2018, the debt collection law firm filed collection actions on behalf of a creditor against the plaintiffs. The plaintiffs subsequently challenged whether the law firm possessed, or could present evidence establishing, a valid and complete chain of assignment for the alleged debts between the original creditors and the current creditor.
The only document the law firm presented to the court was a redacted computer printout that was not the actual attachment to any of the alleged bills of sale. The court agreed with the plaintiffs and dismissed the collection claims for lack of standing.
In March 2019, the plaintiffs filed complaints in federal court alleging that the law firm’s conduct in bringing the collection actions violated the FDCPA.
The plaintiffs first argued that the defendant violated 15 U.S.C. § 1692e by asserting in the statements of claim that the plaintiffs owed disbursements without providing evidence of any entitlement to these disbursements or of the intention to seek to recover them. Second, the plaintiffs argued that the law firm violated 15 U.S.C. § 1692f by bringing debt collection lawsuits without sufficient evidence to establish a valid and complete chain of assignment between the original creditors and the current creditor, in violation of the court’s amended standing order.
The trial court granted the defendant’s motion to dismiss both lawsuits. First, the trial court determined that the plaintiffs had failed to state a claim under § 1692e that the defendant used any “false, deceptive, or misleading representations or means” by seeking disbursements in the statements of claim. The trial court treated the challenged statements as “the equivalent of the prayer for relief” and further held that the plaintiffs failed to allege any facts that would support a finding that the law firm made the claim for disbursements in bad faith.
Second, the trial court concluded that the law firm had not used “unfair or unconscionable” collection means in violation of § 1692f when it failed to meet its evidentiary burden to establish standing in court. The trial court reasoned that the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation” and likewise that the law firm’s failure to satisfy the amended standing order’s evidentiary standards did not violate the FDCPA. The plaintiffs timely appealed.
On review, the Eighth Circuit upheld the trial court’s dismissal of the plaintiffs’ § 1692e claims. The FDCPA broadly prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. When evaluating whether a communication is false, the Eighth Circuit uses an “unsophisticated consumer” standard. Janson v. Katharyn B. Davis, LLC, 806 F.3d 435, 437 (8th Cir. 2015). Additionally, “lawyers who regularly, through litigation, attempt to collect consumer debts” on behalf of their clients are debt collectors governed by the FDCPA. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 593 (2010).
Moreover, a debt collector’s representations made to third parties, including courts adjudicating consumer credit lawsuits, may support liability under § 1692e, and the Eighth Circuit takes a “case-by-case” approach in making this determination. See Hemmingsen v. Messerli & Kramer, P.A., 674 F.3d 814, 818-19 (8th Cir. 2012).
In Haney v. Portfolio Recovery Assocs., L.L.C., the Eighth Circuit applied Hemmingsen to representations made in a debt-collection complaint’s prayer for relief. 895 F.3d at 989. There, the defendant debt collector alleged that the plaintiff debtor owed statutory pre-judgment interest on the accrued contractual interest on the alleged debt. See id. at 979, 987. Even though the Eighth Circuit determined that this “interest-on-interest” was not permitted under Missouri law, the prayer for relief was not a “false, deceptive, or misleading” representation because “the claim for that amount in the petition was a statement directed to the court, and it was a good faith legal position on a point of unsettled Missouri law.” Id. at 989.
In the present case, the Eighth Circuit agreed with the trial court that the defendant’s statements seeking disbursements in the statements of claim amounted to a “prayer for relief.” The plaintiffs argued that prayers for relief can only be found in a section entitled “Prayer for Relief” or in a “wherefore” clause, but the Court reasoned that the plaintiffs were putting “form over substance.” Although the requests appeared toward the beginning of the statements of claim, the Court observed that they were directed to the court and were part of the law firm’s reasonable request for specific relief.
The plaintiffs next argued that the trial court had improperly imposed a new element onto their § 1692e claims by requiring them to plead that the defendant debt collector acted in bad faith when it requested disbursements in the Statements of Claim. However, the Eighth Circuit held that the trial court did not invent a new element and was merely recognizing the principle articulated in Hemmingsen and Haney that, although representations made to third parties (e.g., courts) can be “false, deceptive, or misleading,” a party does not violate § 1692e by articulating its “good faith legal position” in its “prayer for relief.” Haney, 895 F.3d at 989–90; see Hemmingsen, 674 F.3d at 818–19.
The plaintiffs also alleged that there was no possibility of the defendant debt collector recovering disbursements over and above the amount of the alleged debt and the filing fee, and that the defendant debt collector had no intention of seeking to recover any disbursements. However, the Eighth Circuit agreed with the trial court’s assessment that the defendant debt collector could have recovered disbursements if it had prevailed in the collection action, including to cover the cost-of-service fees, referee’s fees, service of documents, certified copies of papers and records in a public office, and witness fees. See Minn. Gen. R. Prac. 516.
Therefore, the Court held that the plaintiffs failed to plausibly allege that the defendant made false, deceptive, or misleading representations in violation of § 1692e.
The Eighth Circuit also upheld the trial court’s dismissal of the plaintiffs’ § 1692f claims. The FDCPA prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f. “The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation)” not “permitted by law” is one such unfair or unconscionable means prohibited by the FDCPA. Id. § 1692f(1).
At the time the defendant debt collector filed its collection lawsuits, the court had adopted an amended standing order that provided:
10. A party seeking judgment against a consumer on a consumer credit lawsuit shall possess and present to the court:
e. admissible evidence establishing a valid and complete chain of assignment of the debt from the original creditor to the party requesting judgment, including documentation or a bill of sale evidencing the assignment with evidence that the particular debt at issue was included in the assignment referenced in the documentation or bill of sale.
Ramsey Cnty. Second Jud. Dist., Amended Standing Order, Consumer Credit Case Management Program (Sept. 23, 2016).
The plaintiffs argued that the defendant debt collector violated § 1692f(1) because it tried to establish the creditor’s standing to sue using evidence (i.e., a redacted computer printout) that did not satisfy the amended standing order.
However, the Eighth Circuit noted that the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation.” Klein v. Credico Inc., 922 F.3d 393, 397 (8th Cir. 2019). Although the defendant did not satisfy the amended standing order’s evidentiary standard, the Court held that failing to do so was not a violation of § 1692f(1), which is intended to protect consumers from being subjected to collection attempts for debts and interest not owed. See Demarais v. Gurstel Chargo, P.A., 869 F.3d 685, 691, 699 (8th Cir. 2017); Haney, 895 F.3d at 987–89. The plaintiffs here do not dispute that the alleged debts are in fact owed.
Additionally, the Eighth Circuit has affirmed the dismissal of § 1692f(1) claims where the debt collector sought to collect interest whose availability was at the time legally uncertain. See, e.g., Hill v. Accts. Receivable Servs., LLC, 888 F.3d 343, 346–47 (8th Cir. 2018). Thus, the Court held that the defendant debt collector was entitled to bring a good faith claim to collect the alleged debts, despite failing to meet its evidentiary burden in conciliation court.
Accordingly, the Eighth Circuit concluded that the plaintiffs failed to state plausible claims that the defendant made “false, deceptive, or misleading” representations in violation of 15 U.S.C. § 1692e or that the defendant debt collector used “unfair or unconscionable means” to collect debts in violation of 15 U.S.C. § 1692f. Therefore, the Court affirmed the trial court’s dismissal of the plaintiffs’ claims.