Archives for December 2016

On December 13, 2016, the United States District Court for the Northern District of Illinois granted the defendant’s motion for summary judgment and denied the plaintiff’s motion for summary judgment in Novak v. Monarch Recovery Management (U.S. District Court, N.D. Ill., Case No. 15-C-2448). In this case, plaintiff Christine Novak alleged that defendant Monarch Recovery Management violated the Fair Debt Collection Practices Act (FDCPA) by sending her a dunning letter after her Chapter 13 bankruptcy filing. Monarch sought summary judgment in the case solely based on a bona fide error defense.

You can read the Court’s Memorandum Opinion and Order here.

Background

The material facts in the case were not disputed.

The plaintiff opened a credit card account with Credit One Bank “in or around January of 2013” and incurred a debt that was later acquired by MSW Capital, LLC, who placed the plaintiff’s account for collection by the defendant in August 2014.

Before sending any letters to the plaintiff, the defendant conducted a bankruptcy scrub with credit reporting agency Experian, which was completed on August 12, 2014. The defendant subsequently sent letters to the plaintiff on August 13 and October 8, 2014 and attempted to call the plaintiff, failing in all instances to successfully reach the plaintiff.

On November 20, 2014, the plaintiff filed for Chapter 13 bankruptcy, but the defendant was not included on the bankruptcy service list and did not receive notice of the plaintiff’s bankruptcy filing. The defendant sent a third letter on January 5, 2015 and ultimately closed the plaintiff’s account on January 12, 2015. The defendant was notified for the first time of the plaintiff’s bankruptcy by the plaintiff’s attorney on January 26, 2015, after which the plaintiff filed suit against the defendant.

Opinion

The Court began discussing the case by noting the following:

“a debt collector who violates § 1692e, or any other substantive portion of the FDCPA, can escape liability if it establishes ‘by a preponderance of the evidence that (1) the violation was unintentional, resulting from a ‘bona fide error,’ and (2) that error occurred not-withstanding the maintenance of procedures reasonably adapted to avoid any such error.'”

With respect to the defendant’s bona fide error defense, Judge Elaine E. Bucklo notes that “the first prong of the bona fide error defense asks whether defendant’s violation of the FDCPA was unintentional,” and concludes that the defendant had no way of knowing about the plaintiff’s bankruptcy before sending the third letter.

The second prong of the bona fide error defense, which the plaintiff focuses on, concerns “whether the procedures Monarch had in place to avoid sending collection letters to consumers in bankruptcy were reasonably adapted to avoiding the error that led to the violation.”

The Court analyzed this second prong of the bona fide error defense by looking at testimony from Monarch President Diane Mazzacano, who testified about Monarch’s policies and procedures for ensuring compliance with the FDCPA. Mazzacano testified about the following aspects of Monarch’s policies and procedures for avoiding violating the FDCPA’s provision against collecting from consumers involved in a bankruptcy:

• Monarch’s practice for all clients “is not to place accounts with Monarch for collection where the consumer has filed bankruptcy.”
• Monarch runs all new accounts through an outside bankruptcy scrubs service before beginning any collection activity.
• Monarch’s employees “are trained, and there is a procedure in place, when a consumer indicates that she has filed bankruptcy, for the collector to notate the account, and the account is closed to the collection floor.”
• Collectors are “monitored and supervised daily by assistant managers, managers, the vice president of collections, the quality assurance department, and the compliance department to ensure compliance with the FDCPA.”

Monarch additionally submitted two versions of its written bankruptcy policy to the Court, which further detail their policies and procedures for dealing with accounts like the plaintiff’s.

The plaintiff’s argument rests on her assertion that the defendant’s policies and procedures are “inherently flawed” for only asking for a scrub from Experian, which the Court dismissed, saying based on past case law that “debt collectors need not take every possible precaution to avoid making an error that results in a violation, as § 1692k(c) only requires collectors to adopt reasonable procedures.”

Judge Bucklo concludes that “Monarch has established the bona fide error defense as a matter of law” while also noting that due to the plaintiff offering “no response at all to defendant’s argument that it is entitled to judgment” that the defendant is entitled to judgment “regardless of its ability to establish the bona fide error defense.”

insideARM Perspective

This case is another strong argument for maintaining clear and detailed policies and procedures for FDCPA compliance, similar to the Arnold v. Bayview Loan Servicing, LLC, et al case covered by insideARM in February 2016. Additionally, it’s important to keep good records about your firm’s policies and procedures, in case you need to prove in court that you have them.

The Standing Advisory Committee on the Rules of Civil and Appellate Procedure for the Commonwealth of Massachusetts Court System has proposed two new rules of civil procedure regarding actions for money damages against individuals arising from credit card debt. Per the announcement:

“The proposed amendments were drafted by an ad hoc working group that was formed to consider rule revisions to address abuses in debt collection cases and difficulties that a defendant may confront when a credit card debt has been assigned and the identity of the original creditor is unclear from the complaint.

Problems in these cases include poorly documented debts, suits commenced after the expiration of the statute of limitations, and lack of notice to defendants. In developing its proposals, the working group considered rules adopted in other states and certain provisions of the Massachusetts Uniform Small Claims Rules. The working group elected to address only cases involving individual credit card debt because anecdotal evidence suggested that most of the problems in debt collection cases involve credit card debt. Given the many kinds of debts involving both personal and real property, the working group focused on credit card debt.”

Proposed Mass. R. Civ. P. Rule 8.1

Proposed Mass. R. Civ. P. Rule 8.1 would require plaintiffs to file two additional affidavits and a certification with their complaints in credit card debt collection cases against individuals. 

• The first affidavit requires certain specific information about the debt(s) at issue so that defendants can admit or deny the allegations and assert affirmative defenses. 

• The second affidavit regarding address verification is intended to increase the likelihood that defendants receive notice when actions are commenced. This affidavit is based on the Joint Standing Order on Verification of a Defendant’s Address issued by the Boston Municipal and District Courts.

• The certification that would be required relates to the statute of limitations, and is intended to make it less likely that plaintiffs will commence actions on debt that is time barred. A plaintiff would be required to state the date the cause of action accrued, the length of the limitation period, and to certify that the limitations period has not expired.

Proposed Mass. R. Civ. P. 55.1

Under proposed Mass. R. Civ. P. 55.1, without the required affidavits and certification, defaults and default judgments may not be entered.

The complete proposed rules appear as links in the announcement. Draft forms for the affidavit regarding debt, and for verification of defendant’s address, required by Rule 8.1 also appear as links in the announcement.

The announcement invites comments to the proposed rules. Comments should be directed to Christine P. Burak, Supreme Judicial Court, John Adams Courthouse, One Pemberton Square, Boston, MA  02108 on or before February 28, 2017. Comments may also be emailed to christine.burak@sjc.state.ma.us.

insideARM Perspective

insideARM suspects that more and more states will be proactive in this area. Alleged abuses in the use of collection litigation has been the topic of numerous articles and news reports; from “sewer service” to suits on debts outside the statute of limitations.  Regulators have also taken aim at collection law firms.

insideARM has written extensively on the issue. See our April 28, 2016 discussion on Propublica’s article on debt collection litigation on medical accounts. See also our December 28, 2015 article on the CFPB Consent Decree with the collection law firm Frederick J. Hanna & Associates P.C..

This issue is not going away anytime soon.

In a brief statement today, the Federal Communications Commission formally announced that Chairman Tom Wheeler will step down as of January 20, 2017, following more than three years at the agency. A quote from Wheeler said, “Serving as F.C.C. Chairman during this period of historic technological change has been the greatest honor of my professional life.”

The Chairman’s tenure was controversial, with the July 2015 Declaratory Ruling and Order on the Telephone Consumer Protection Act (TCPA) among the most contentious, especially for the ARM industry.

Following years of petitions – and waiting – for the agency to provide clarification on elements of the TCPA, a fact sheet describing proposed rules was published on May 27, 2015. The proposals were discussed at a hearing three weeks later, and then on July 10, it was revealed pubicly that the proposal had been accepted by a 3-2 majority of Commissioners along party lines. The three Democrats (including Chairman Wheeler) voted in favor of the Ruling while the two Republicans opposed it.

In March of 2016 the group testified before Congress, and we learned of the depth of disagreements between the Commissioners. It was clear that the Republican commissioners felt that the new Ruling went too far and was punitive to legitimate business.  The Democrat commissioners lumped all potential callers into the unscrupulous “robocaller” category. Commissioner Pai said this,

“First, the FCC continues to be run in a partisan fashion. Since December 2013, there have been 20 separate party-line votes at our monthly meetings.  That’s twice as many as under Chairmen Martin, Copps, Genachowski, and Clyburn combined.  Proposals from Republican Commissioners have been roundly rejected as crossing a “red line,” even when an identical proposal from a Democratic Commissioner is accepted later on.  And requests by Republican Commissioners to increase transparency or amend a proposal are routinely ignored, which means the Commission regularly adopts orders without any official response to our requests.

Second, collaboration has fallen by the wayside.  During my first eighteen months on the job, every Commissioner worked to reach consensus.  That maximized the chance that every Commissioner could vote for a proposal or order.  Under Chairman Genachowski and Chairwoman Clyburn, we reached consensus 89.5% of the time on FCC meeting items.  I can assure you that we did not always start out in the same place.  But we worked hard to reach agreements that everyone could live with.  And we usually succeeded.

It’s far different now.  All too often, softening the rough edges of an order to make it more palatable is off the table.  Narrowing the scope of a decision to achieve unanimity is rejected outright.  Indeed, consensus among the Commissioners no longer appears to be a goal.  Instead, the “rule of three” is the new norm.  Unsurprisingly, then, unanimity has precipitously dropped at the agency.  Commissioners have been able to reach consensus on only 56.4% of our monthly votes during Chairman Wheeler’s tenure.

Third, the FCC continues to choose opacity over transparency.  The decisions we make impact hundreds of millions of Americans and thousands of small businesses.  And yet to the public, to Congress, and even to the Commissioners at the FCC, the agency’s work remains a black box.

Commissioner O’Rielly’s testimony had a similar theme. He too spoke about a broken process and lack of transparency.

“Today, Commissioners do work together on certain issues – and I hopefully play some role in our bipartisan agreements.  However, the Commission is often fragmented, which is especially noticeable for the larger ticket items.  For instance, while I maintain a voting record of approximately 90 percent with the Chairman for circulated items, the percentage of open meeting items on which I have agreed is only approximately 65 percent.  That is up slightly from 62 percent a year ago, likely due to a recent effort to include one non-controversial item on each month’s agenda.  A significant reason for disagreements can be traced to procedural fouls that are unnecessary, unwise and harmful.

The Commission continues doing business as usual with all the corresponding difficulties.  We continue to see problems month after month stemming from the fact that the proposals we vote on are hidden from the public until it is too late for meaningful input.  In order to address this concern, it has now become a ritual for the Chairman’s office to release a one- or two-page, often inaccurate or misleading, “fact” sheet purporting to describe the details of each major proposal, along with one or more prose versions of the same talking points in the form of a press statement or blog post. [emphasis added]

…Further, the timing of when Commissioners actually get documents is problematic as it has become standard procedure for the Chairman’s staff to provide off-the-record briefings to favored reporters days before an item is circulated to Commissioners. The day of circulation, a major press roll-out occurs complete with press releases, blogs and “fact” sheets, but the actual document under consideration doesn’t hit my inbox until hours later, sometimes late at night. Meanwhile the press is reporting that the item has circulated and asking for comment.”

Indeed, in a conversation between O’Rielly and the Consumer Relations Consortium in January 2016 the Commissioner expressed dismay at the process that occurred relative to the TCPA Declaratory Ruling and Order, and suggested that he was surprised and frustrated by the outcome.

Last week the Republican-led Senate was scheduled to vote on the reconfirmation of Democrat Commissioner Jessica Rosenworcel for another 5 year term, however they took no action. This means it is likely she will be out at the end of December.

This leaves President-Elect Trump with the opportunity to appoint more business-friendly Commissioners, who may overturn or revise the latest TCPA Ruling, which would be a welcome development for the ARM and many other industries — and a disappointment to consumer attorneys who have made a lucrative business out of TCPA litigation.

PHOENIX, Ariz. – BillingTree®, the leading provider of omni-channel, integrated payments solutions to the healthcare, ARM and financial services industries, today announced the launch of the myPayrazr Portal Student Loan Rehab (SLR). The new portal enables agencies to streamline student loan collection efforts by offering affordable automated payment plans to help students better manage loans and restore their access to future borrowing.

myPayrazr Portal SLR, a specialty edition of the myPayrazr Portal, addresses the growing issue of defaulted student loan debt. The portal enables agencies to establish reasonable, income-based repayment plans for qualified consumers in default on their student loans, and then accept monthly online payments 24/7 until the loan is rehabilitated.

“BillingTree is committed to the ARM Industry and our latest portal serves one of the largest sources of revenue for many agencies,” said Chad Probst, VP of Sales and Business Development at BillingTree. “With myPayrazr Portal SLR, agencies will save on process management and staffing; while offering tangible and attractive advantages to consumers who’ve fallen behind on their student loans – including a streamlined and simplified facility to establish new terms plus a convenient online method to resume paying back their debt.”

Learn more about the myPayrazr Portal SLR here or contact BillingTree at 877-424-5587.

About BillingTree
BillingTree® is the leading provider of integrated payments solutions to the healthcare, ARM and financial services industry verticals. Through its technology-enabled suite of products and services, BillingTree enables organizations to increase efficiency and decrease the costs of payment processing while adhering to compliance regulations. Leveraging more than a decade of market experience, BillingTree is dedicated to growing payments with technology through an integrated omni-channel offering, suite of proprietary products and value-added services, and a Company-wide focus on delivering extraordinary customer service.

A recent opinion issued by the United States District Court for the Eastern District of Missouri showcases the challenges for ARM industry companies facing Fair Debt Collection Practices Act (FDCPA) litigation. The opinion in Anderson v. Portfolio Recovery Associates, LLC (U.S. District Court, E.D. Ill., Case No. 4:15-CV-766) discusses the request and denial of an award of attorney’s fees for a victorious defendant in a FDCPA matter. A copy of the opinion can be found here.

Background

Plaintiff Debbie Anderson filed suit on May 14, 2015, alleging that defendant Portfolio Recovery Associates, LLC (PRA) violated the FDCPA by sending two letters attempting to collect a debt. The two parties agreed to a scheduling plan and attended mediation in January 2016, but the case was not settled.

PRA filed a motion for summary judgment in April 2016 after a period of limited written discovery. The plaintiff failed to respond to PRA’s motion for summary judgment, and ultimately the Court issued a Memorandum and Order granting summary judgment to the defendant. PRA then brought a motion for attorneys’ fees.

Opinion

The Court began their discussion of the case by citing Section 1927 of the U.S. Code, which provides for sanctions against an attorney who “multiplies the proceedings in any case unreasonably and vexatiously,” generally interpreted by other courts as a way to penalize attorney conduct that when “viewed objectively, manifests either intentional or reckless disregard of the attorney’s duties to the court.”

In this case, the defendant argues that the plaintiff’s acts of extending the proceedings and then failing to respond to the defendant’s motion for summary judgment warrants a penalty in accordance with U.S.C. Section 1927. The defendant specifically sought to have its attorneys’ fees reimbursed for the time spent preparing the summary judgment motion, which they told the plaintiff’s attorney would be coming during the January 2016 mediation session.

The Court disagreed with the defendant about the conduct of the plaintiff’s attorney, saying the following:

“The Court does not find that plaintiff’s counsel acted with objectively unreasonable behavior and bad faith by not voluntarily dismissing the suit after mediation. Nor does the Court find that plaintiff vexatiously and unreasonably multiplied the proceedings under 28 U.S.C. § 1927. This is an FDCPA case that was resolved within thirteen months on defendant’s summary judgment motion. The case followed the usual course—the parties did not bicker over discovery, take depositions, or engage in voluminous motion practice. The Court has reviewed the filings and correspondence between the parties, and finds no intentional or reckless disregard of any attorney’s duties to the court.”

The Court held that the failure to respond to the defendant’s motion for summary judgment “can be seen as a tacit admission that defendant’s summary judgment motion is meritorious, it does not amount to vexatious and unreasonable behavior,” finding that an award of attorneys’ fees “would likely dampen the legitimate zeal of an attorney in representing his client.”

insideARM Perspective

The case is again highlighting the financial burden for firms defending themselves against FDCPA litigation and the incredibly difficult challenge of getting a court to award attorneys’ fees after successfully defending a case.

This case should be read in conjunction with Hamburger v. Northland Group, Inc. (U.S. District Court, M.D. Pa., Case No. 3:13-CV-01155), which insideARM covered in February 2016. In that case, the Court laid out a terrific argument for an award of attorneys’ fees, yet failed to pull the trigger on an award.

The short observation: good luck convincing a judge to award attorneys’ fees.

According to an announcement on the Federal Communications Commission website, today at 1pm eastern, the FCC and Governmental Affairs Bureau will host a web-based Info Session on robocalls that will provide information about consumers’ rights and the steps they can take to prevent robocalls. 

The webinar is free and intended for all consumers, and will explain the FCC’s role in addressing this issue and the steps consumers can take to protect themselves from and/or decrease the amount of robocalls they receive. 

It’s not too late to register.

To register and join the online event:

1. Click here
2. At the Event Information page click on Register
3. At the Register for event page provide the required information and click on Submit
4. Once registered you will receive a confirmation email message containing instructions for joining the event, the password and the link for the meeting.
5. Information for joining the audio portion of the meeting will appear as a popup when you join the meeting.  If it does not appear you may use the following to join the audio portion of the meeting: Call Number: 1-888-858-2144, Access Code: 2697307

Alternatively, to participate by telephone, use the following conference bridge at the time of the Info Session: Call Number: 1-888-858-2144, Access Code: 2697307

During the event, WebEx and conference call participants can submit comments and questions by emailing robocallswebinar@fcc.gov. 

WOODLAND HILLS, Calif. – Account Control Technology Holdings, Inc.’s (ACT Holdings), a national leader in delivering debt recovery and business process outsourcing solutions, recently visited the Susan G. Komen® (Komen) headquarters in Dallas, Texas to present the nonprofit with a donation of $63,600. The generous contribution was a result of employee fundraising efforts from its 18 offices and a company match. Ten ACT Holdings employees from around the U.S. attended the check presentation.

In October, ACT Holdings alongside its nonprofit arm, Account Control Technology Foundation, Inc., held a companywide fundraising campaign, “ACT for a Cure,” to benefit Komen in recognition of Breast Cancer Awareness Month. Yearly, since 2011, ACT has held this fundraiser donating a total of more than $215,000. To raise funds, offices participated in luncheons, casual days, bake sales, contests, raffles, tournaments and more.

“Every year I go with one or two employees to the Susan G. Komen headquarters to present them with our donation,” said Dale Van Dellen, Chairman of ACT Holdings. “This year I wanted to bring more staff members who rallied around our fundraising efforts to meet the people behind Komen. You see, not only does Komen invest funds in research but also provides services to the underserved. In the United States, there are so many women who do not have access to care. Komen selects some of these women and funds their treatments with the goal to save an additional 20,000 women lives each year!”

The ACT Holdings employees who attended the recent check presentation were:

• Dale and Debbie Van Dellen, ACT Holdings Co-Founders
• Jessi Karrer, Senior Bid Writer & Founder of ACT for a Cure (Woodland Hills, CA)
• Gail Davidson, Executive Assistant (Dallas, TX)
• Lynn Heineman, Senior VP, Sales & Marketing
• Ray Eshghipour, Director of Operations (Dallas, TX)
• Erica Cortez, Admin Clerical (Bakersfield, CA)
• Sarah Richardson, Office Manager & Executive Assistant (Mason, OH)
• Jeremy Tovar, Collection Manager (San Angelo, TX)
• Diane McKenzie, Admin Assistant (Montgomery, AL)

“We at Komen are so thankful for the funds that everyone at ACT Holdings worked so hard to raise,” said Megan Rouse, DIY Program Manager at Komen. “Including ACT Holdings’ donation, we have raised over $1.3 million this year in the fight to end breast cancer forever. This money is helping us towards our bold goal of reducing the current number of breast cancer deaths in the U.S. by 50% in the next decade.” 

About Account Control Technology Holdings, Inc. (ACT Holdings)

Account Control Technology Holdings, Inc. provides comprehensive business process outsourcing and financial services to diverse industries. Our companies partner with clients to help them run the “business” behind their operations so they can focus on what they do best – whether it’s serving customers, educating students, caring for patients, or keeping communities moving forward. ACT Holdings companies include Account Control Technology, Inc. and Convergent, Inc. and has 18 offices with more than 4,800 employees. For more information, visit www.accountcontrolholdings.com.

About Account Control Technology Foundation (ACT Foundation)

The Account Control Technology Foundation is a charitable organization established by Dale and Debbie Van Dellen with a stated mission “to improve the future of students and the greater community by offering financial literacy and debt management education, mentorship and support to those in need.” For more information, email foundation@accountcontrol.com or visit www.accountcontrolfoundation.org

About Susan G. Komen® (Komen)

Susan G. Komen is the world’s largest breast cancer organization, funding more breast cancer research than any other nonprofit outside of the federal government while providing real-time help to those facing the disease. Since its founding in 1982, Komen has funded more than $920 million in research and provided more than $2 billion in funding to screening, education, treatment and psychosocial support programs serving millions of people in more than 30 countries worldwide. Komen was founded by Nancy G. Brinker, who promised her sister, Susan G. Komen, that she would end the disease that claimed Suzy’s life. Visit komen.org or call 1-877 GO KOMEN. Connect with us on social at ww5.komen.org/social.

JACKSONVILLE, Fla. — Stellar Recovery Inc. (SRI) is excited to announce the evolution of our Operations Management team. With our Operations Management team having over 35 combined years of collections and leadership experience we have shifted roles to better align the team for the business.

Edmond Luster has been promoted from the Operations Training and Development Manager to the Director of Operations. Luster has been in the collections industry since 2005, holding key leadership positions in Operations at Select Portfolio Servicing and Enhanced Resources Centers.  Luster is a hands on leader who said, “I believe that by being consistent in your message you build a strong foundation that easily adapts in the ever-changing collections industry.” Luster then went on to say “In my new role I plan to continue to help Stellar be in the forefront of compliance and customer service for collections”.  

Edmond reports directly into Kim Harvey, Stellar Recovery’s EVP of Operations and Client Services.  Harvey is excited about the growth of the leadership team and says, “With Edmond as the Director of Operations it enables me to take a step back from the day to day and work more strategically across the teams”.

Also a part of the team  is Hayden Miller, Operations Manager.  Miller’s primary responsibility is to recruit, train and develop an elite team of collectors that will focus on making Stellar competitive as we expand into new verticals.

About Stellar Recovery

Stellar Recovery Inc. is an ARM leader headquartered in Jacksonville, Florida. SRI is dedicated to excellence in the accounts receivable industry by meeting and exceeding our client’s expectations. Stellar Recovery leverages the use of technology to drive effective and efficient collections, while eliminating risks. Please visit our website at www.stellarrecoveryinc.com or contact us at 904-438-2500.

Communicating with consumers is the lifeblood of debt collection; if collectors cannot communicate, they cannot collect on debts from consumers.  As America becomes more diverse, more consumers will have limited English proficiency (“LEP”).   Many collectors have recognized this means they must adapt and find ways to communicate with LEP consumers in languages other than English, usually in Spanish.  Many collectors have done so and communicate with consumers in Spanish and (less often) in other non-English languages.

            The CFPB has stated that it is considering developing proposals under which debt collectors would be required to provide LEP consumers with key disclosure documents in languages other than English.  Consumer Financial Protection Bureau, Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking:  Outline of Proposals Under Consideration and Alternatives Considered (July 28, 2016), at 16-17.  Specifically, the CFPB’s SBREFA Outline explained that it is considering requiring that debt collectors provide LEP consumers with validation notices and statements of rights in language other than English.  The CFPB would develop non-English language versions of these documents and collectors, using one of two proposed alternative approaches, would provide them to LEP consumers.

            It of course makes sense for LEP consumers to receive information in languages they understand.  But the CFPB is considering taking a different approach to non-English language disclosures for debt collectors than it has taken for other providers of financial goods and services.  The CFPB is considering requiring in regulation that debt collectors provide non-English language disclosures and specifying in those regulations how they must do so, in contrast to its approach in other regulations of allowing but not requiring non-English language disclosures.

            Mortgage disclosures aptly illustrate the point.  The CFPB has substantially reworked mortgage disclosures during its first five years.  Yet none of this reworking has resulted in the CFPB requiring any non-English language disclosures be provided to LEP consumers in mortgage advertising, marketing, origination, contracting, or servicing.  So, under the CFPB’s existing regulations and the approach under consideration in its SBREFA Outline, collectors would be required to provide non-English language disclosures only during collections on mortgage debts.   This is an odd result, especially because non-English language disclosures are likely more important to LEP consumers in deciding to take out mortgage loans than in responding to collection attempts on debts arising from those loans.    

            Why is the CFPB considering requiring that only debt collectors must provide non-English language disclosures to LEP consumers?  In the SBREFA Outline, the CFPB stated that a substantial number of LEP consumers would benefit from receiving debt collection disclosures in a language other than English.  While this may well be true, it does not distinguish collection disclosures from disclosures during other parts of the consumer credit transaction lifecycle, because non-English language disclosures in contexts throughout this lifecycle likely also would benefit a substantial number of LEP consumers.

            The CFPB has provided no explanation of why it may be singling out collections for novel, burdensome, and complex non-English language disclosure requirements.  If the CFPB has evidence indicating that there is more consumer harm from English-language disclosures during collections than English-language disclosures during other parts of the consumer credit transaction lifecycle, the CFPB should identify what that evidence is.  In the absence of such evidence, the CFPB should consider such collection disclosures in connection with a broader assessment of mandating non-English language disclosures to all parts of the consumer credit transaction lifecycle.  Such an approach would be more equitable to collectors and could result in the development of a more coherent overall regulatory scheme under which firms make non-English disclosures to LEP consumers.

On December 5, 2016 a federal judge in Missouri ruled that under common law Agency Principals a hospital could not be found vicariously liable for potential Telephone Consumer Protection Act (TCPA) violations of a third party collection agency.  The case is Petri v. Mercy Health d/b/a Mercy Hospital St. Louis, Case No. 15-1296, E.D. Missouri).

Background

In July 2010, Defendant Mercy Health (Mercy) entered into a Collection Services Agreement with Valarity, LLC. (Valarity.) Under the agreement, Valarity was to perform various collection services for Mercy including “telephone calls and requests for payment.” The agreement contains a provision stating that Valarity would be acting as an independent contractor for Mercy and that nothing in the agreement should be deemed to create an agency relationship between them. It further states that each party would be solely responsible for the acts, omissions, and control of its own employees.

Plaintiff Joseph Petri (Petri) alleged that Valarity used an automated dialing system to call his cellular phone approximately 26 times between February and April 2014. The calls were made to collect debt that “supposedly arose from medical services claimed to be provided by Mercy to Petri, which was ultimately found to be a mistake.”  Petri claimed that Valarity’s conduct violated the TCPA and because Valarity was acting on behalf of and as an agent for Mercy, Mercy should be held vicariously liable here.

Before the court was a Motion for Summary Judgment brought by Mercy. Editor’s note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

In its Motion for Summary Judgment Mercy argued that it cannot be liable for Valarity’s actions because Valarity was not its agent under common law principles of agency.

In Petri’s response/opposition to Mercy’s Motion for Summary Judgment the Plaintiff’s attorney included references to corporate and tax records that he claimed show that Valarity is actually owned by Mercy.

The Court’s Decision

The court granted Mercy’s motion for summary judgment. A copy of the Memorandum and Order can be found here.

The court began its analysis by discussing Principal/Agency common law:

“Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.” Restatement (Third) Of Agency.

Agency is a legal concept that depends upon the existence of certain factual elements: (1) the manifestation by the principal that the agent shall act for him; (2) the agent’s acceptance of the undertaking; and (3) the understanding of the parties that the principal is to be in control of the undertaking.

The party asserting that a relationship of agency exists generally has the burden in litigation of establishing its existence.”

In their Motion for Summary Judgment Mercy argued that Valarity was not its authorized agent and points to the language of its collections agreement with Valarity, which contains a provision explicitly stating that Valarity was not subject to Mercy’s control and was acting as an independent contractor. Mercy also provided an affidavit from one of its vice presidents, confirming that, as stated in the agreement, Valarity did not have the authority to act on Mercy’s behalf and Mercy had no right to control Valarity.

The only evidence submitted by Petri was an affidavit from his attorney, John Yanchunis, attesting that he found corporate and tax records on the internet indicating Mercy is the parent company of Valarity.

The court ruled that, even assuming the records submitted by Petri constitute admissible evidence, it was not enough to create an issue of material fact as to whether Valarity was acting as Mercy’s agent.

The court wrote:

“A close look at the documents cited by Yanchunis reveal that they provide evidence only as to the legal and tax relationship between Mercy and Valarity. They establish nothing about the day-to-day business relationship between the companies, and they provide no evidence that Mercy controlled Valarity’s collections activities. As such, Petri has provided no evidence to indicate that Valarity was acting as Mercy’s authorized agent when it violated the TCPA.”

insideARM Perspective

This is not the first and it will not be the last attempt to find a client vicariously liable for TCPA claims against a Third Party collection agency. Plaintiff attorneys everywhere are always in search of the proverbial “deep pocket.” This case had the unusual twist of statements in an affidavit by the Plaintiff’s attorney that the third party collection agency involved in the activity was also owned by the hospital Defendant. 

The result in this case should not be considered the final say on this issue. Facts and circumstances will be different in every case.

The potential exposure for clients is real. What this case tells us is contract language is important. But the analysis should not end there.