7th Circuit Court of Appeals Decision: New Tactic By Debt Collectors?

[BV80]

In this recent decision, the Seventh Circuit Court of Appeals ruled that a consumer’s FDCPA claim failed because he “failed to present sufficient evidence that the debt incurred on the Citibank account was for personal, family, or household purposes and therefore a ‘consumer debt.’”

https://scholar.google.com/scholar_case?case=601733704072297992&q=“FDCPA”&hl=en&scisbd=2&as_sdt=4,112,127

[Brotherskeeper]

 

"We also recognized recently that where, as here, a plaintiff maintains that the underlying debt was not his, he can nonetheless claim FDCPA protection by showing that the debt collector treated him as a "consumer" allegedly owing a consumer debt. Loja v. Main St. Acquisition Corp., 906 F.3d 680, 684 (7th Cir. 2018) (holding "that the definition of `consumer' under the FDCPA includes consumers who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe"). However, a plaintiff proceeding under this theory still must offer evidence to establish that the debt was a consumer debt: in other words, that the debt was incurred for personal, family, or household purposes."

[snip]

"This appeal therefore turns on the question whether Mr. Burton submitted sufficient evidence to create a triable issue of fact that the debt incurred on the Citibank account was for personal, family, or household purposes.^[17] "

[snip]

Mr. Burton contends that his own statements suffice to show that this was a consumer debt.^[19] We cannot accept this submission. Throughout the state court action, he represented that he had never applied for, had no knowledge of, and made no purchases on or payments toward the Citibank account.^[20] In his federal complaint, by contrast, he alleged that, "[t]o the extent that Burton entered into a credit agreement with Citibank, NA, such agreement was entered into for personal, family or household purposes."^[21] This latter allegation cannot be reconciled with his total disavowals in the state court action. Nor has Mr. Burton submitted an affidavit or any other sworn testimony in this litigation to support his position in opposition to summary judgment. Without more, the bald assertion in his complaint is hardly affirmative evidence that the debt was a consumer debt. See, e.g., Martin v. Allied Interstate, LLC, 192 F. Supp. 3d 1296, 1307 (S.D. Fla. 2016) (granting summary judgment for defendants where plaintiff stated the eBay account was not hers, but offered no evidence showing the account or debt was "consumer in nature").^[22]"

[Goody_Ouchless]

54 minutes ago, Brotherskeeper said:

However, a plaintiff proceeding under this theory still must offer evidence to establish that the debt was a consumer debt: in other words, that the debt was incurred for personal, family, or household purposes."

So if the debt isn't yours, you still need to prove that the actual owner of the debt used it for consumer purposes? And how, with privacy laws and policies, is one supposed to do that? I assume find the actual debtor and offer to split the winnings?

 

[Brotherskeeper]

51 minutes ago, Goody_Ouchless said:

So if the debt isn't yours, you still need to prove that the actual owner of the debt used it for consumer purposes? And how, with privacy laws and policies, is one supposed to do that?

The Court ruled that Burton relied on hearsay statements and then explained how he could have done so:

"Determining the purposes for which a debt was incurred is necessarily a fact-based, case-specific inquiry. . .As the district court correctly noted, whether the account was a consumer account did "not provide a factual dispute of whether" the debt was a consumer debt.^[32] Third, through "reasonable efforts," Mr. Burton could have obtained the sworn deposition or in-court testimony of Reinecke or another Citibank representative. Fed. R. Evid. 807(a)(3). Such evidence would have been equally as probative, if not more probative, than the email because such testimony would have been subject to cross-examination about the nature of the debt.^[33] "

[Pericles]

Could Reinecke or another Citibank representative ever possibly testify about the nature, or type, of the debt?  It seems that they could only testify about the designation of the account.

It seems that the only person(s) that could ever provide evidence about the purpose(s) for which the debt was incurred are the person(s) who incurred the debt and put it towards some purpose.  Who else could say whether the debt was incurred for personal, family, or household purposes other than the person(s) who directed the utilization of the proceeds from the debt towards some purpose?

Perhaps if Burton had had obtained the sworn deposition or in-court testimony of Reinecke or another Citibank representative, and they testified about the designation of the account, then that would be enough (through inference) to establish a genuine issue as to a material fact about the nature of the debt — sufficient to survive summary judgment.  But the court seems to be saying the opposite.

Edit: After listening to the oral argument, it seems that at least one of the circuit judges hearing the appeal was annoyed by this case overall, and was especially concerned about the attorney's fees "wrapped up in this case".  One of the judges said;

Quote

"There's obviously a whole lot of attorney's fees wrapped up in this case."

"And that's sorta what's hanging out there."

"the attorney's fees were the whole case."

"This is irritating for everybody."

My guess is that the written decision has little to do with the reason that the case was decided as it was.  It was just a way for it to be decided the way it was.

[fisthardcheese]

On 9/27/2019 at 7:11 PM, Pericles said:

My guess is that the written decision has little to do with the reason that the case was decided as it was.  It was just a way for it to be decided the way it was.

Sounds like judges trying to legislate from the bench, not happy with the fee shifting provisions in the FDCPA.  This is a terrible decision.

[BV80]

On 9/29/2019 at 11:56 AM, fisthardcheese said:

Sounds like judges trying to legislate from the bench, not happy with the fee shifting provisions in the FDCPA.  This is a terrible decision.

Based upon the law, I agree with the ruling.  I disagree that the judge was trying to legislate from the bench.  The FDCPA requires that a debt be incurred “primarily for personal, family, or household purposes.”  The burden is on the consumer to establish that fact.

We cannot deny knowledge of an account for which we are sued, and then claim to know the purpose for which that account was opened and used.  

I didn’t realize it, but the 4th Circuit Court of Appeals made the same decision in 2012 in Boosahda v. Providence Dane, LLC.

As in Burton, Boosahda denied knowledge of the account.  

“At trial in state court, Boosahda testified that he could not recall having credit card accounts with Chase or First USA and did not remember whether he had used Chase or First USA credit cards to make purchases.”

“In this appeal, we are tasked solely with deciding whether the district court erred in concluding that Boosahda failed to show that the debt incurred on the Chase and First USA credit cards was consumer debt — as opposed to commercial or business debt — for FDCPA purposes.  Boosahda maintains that he made the requisite showing in three ways. First, he contends that a letter he received from Providence constituted an admission that it was seeking to collect a consumer debt. Second, he posits that the motion for judgment against Boosahda personally in the state court action establishes Providence's attempt to collect a consumer debt. And, third, he suggests that his declaration in the district court established that he did not make charges on any credit cards for business purposes. We reject each of these contentions in turn.”

“Finally, we disagree with Boosahda that his declaration in opposition to Providence's summary judgment motion demonstrated that the amount owed on the credit cards was consumer debt. The district court properly determined that Boosahda's statements in that declaration conflicted with the answers he provided in his deposition. In the latter — as in his state court trial testimony — his sworn statements were tentative, i.e., he could not recall obtaining the Chase and First USA credit cards and did not remember making any purchases with those cards. Yet in his declaration Boosahda was able to state definitively that he never used those cards for any business purpose. Like the district court, we deem it troubling that Boosahda suddenly possessed knowledge of the nature of the debt, having repeatedly disavowed under oath knowledge of the debt itself.”

[Pericles]

The burden is on the fdcpa plaintiff to establish that the debt is consumer debt.  However, the 7th cir. coa has set a pretty high bar for a plaintiff who asserts that the underlying debt is not his to establish the nature of the debt.

In Burton, the court references their prior decision; Loja v. Main St. Acquisition Corp., 906 F.3d 680, 684 (7th Cir. 2018);

Quote

We also recognized recently that where, as here, a plaintiff maintains that the underlying debt was not his, he can nonetheless claim FDCPA protection by showing that the debt collector treated him as a "consumer" allegedly owing a consumer debt. Loja v. Main St. Acquisition Corp., 906 F.3d 680, 684 (7th Cir. 2018) (holding "that the definition of `consumer' under the FDCPA includes consumers who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe"). However, a plaintiff proceeding under this theory still must offer evidence to establish that the debt was a consumer debt: in other words, that the debt was incurred for personal, family, or household purposes.

So, how did Mario Loja pull this off but not John Burton?  Both denied everything. Burton obviously made a bunch of inconsistent statements the that 7th cir. coa determined, even after giving Burton the benefit of all reasonable inferences in his favor, did not amount to sufficient evidence to create a triable issue of material fact.

The lower court in Loja determined that it was essentially an impossibility (pronounced it futile) for the non-account-holder to provide evidence of the nature of the debt.  The 7th cir. coa disagreed and remanded in back to the lower court to give Loja the opportunity to amend.

That still leaves the question, what would it take for a plaintiff who asserts that they are not the account holder to establish the nature of the debt?  The 7th cir. coa states that it is possible to do so, but for the reasons I discussed in my last post, their suggestion (in Burton) about how to do so doesn't seem likely to produce evidence about the nature or ultimate purpose of the debt.

Had Burton's attorney deposed or examined Reinecke, what testimony could Reinecke have provided about the purpose to which the debt had been put?

Even if were possible in discovery for Burton's attorney to obtain transaction level documents from Citibank that provided complete details about the items acquired through the incurrence of the debt, such evidence would produce no evidence about the purpose to which those items had been put.

The 7th cir. coa says several times in Burton that the documents admitted into evidence, including the statements and the merchant names, "shed no light on why these charges were incurred".

So the court suggests that Burton should have deposed or examined Reinecke;

Quote

through "reasonable efforts," Mr. Burton could have obtained the sworn deposition or in-court testimony of Reinecke or another Citibank representative. Fed. R. Evid. 807(a)(3). Such evidence would have been equally as probative, if not more probative, than the email because such testimony would have been subject to cross-examination about the nature of the debt.[33]

Burton's attorney wouldn't have done any "cross-examination", but what could Reinecke ever say about why the debt was incurred?

What could anyone say about the purpose other than the person who purposed the items?  The lower court in Loja said it was impossible for anyone else to say.  The 7th cir. coa says that it is possible and that the person who purposed the items is not necessarily needed, but this creates quite a burden if no evidence is available from that person.  The fdcpa should be especially accessible to those that never even incurred any debt.  This decision makes it less accessible that it is for those that did incur debt.

[SJULawAlum]

On 9/27/2019 at 5:30 PM, Goody_Ouchless said:

So if the debt isn't yours, you still need to prove that the actual owner of the debt used it for consumer purposes? And how, with privacy laws and policies, is one supposed to do that? 

 

It's nearly impossible. The only scenarios I can think where this would be possible is if a family member had a similar name and a debt collector went after the wrong family member for a debt the other family member incurred. In that situation, the incorrectly targeted consumer could use his family member's testimony to establish the nature of the debt. 

But if we are talking a situation where the consumer targeted has no idea who the actual debtor is - I can't see any way they could prove the nature of the debt. 

[SJULawAlum]

Also interesting, he swore under oath in the state court action that the debt was not his. Then in the Federal Complaint he alleges that the debt was incurred for household purposes.

So the irony of it all is, and we will likely never know this answer, if he perjured himself in the State court action it actually foreclosed his ability to win any damages on the FDCPA claim. 

[Pericles]

3 hours ago, SJULawAlum said:

But if we are talking a situation where the consumer targeted has no idea who the actual debtor is - I can't see any way they could prove the nature of the debt. 

The lower court in Loja said that trying to do so is futile.  But the 7th cir. coa said that was wrong and remanded.

Perhaps the 7th cir. coa will provide some guidance about how to do so in some future case.  No one should be holding their breath while waiting.

In the meantime, the 7th cir. coa's decision in Nichole L. Richards v. Par, Inc., et al shouldn't be too far off.

It doesn't appear that there will be any petition for cert in the Casillas case.  Even the advocates say that it is a nasty case and therefore not a good candidate for cert.

For those that haven't followed Casillas v. Madison Avenue Associates, Inc., the 7th cir. coa created a split with the 6th cir.

The case involves standing vis-a-vis "injury-in-fact" and related matters.

The 7th cir. coa declined en banc rehearing of the case, because it always does.  The dissent is worth reading though.

[fisthardcheese]

On 10/10/2019 at 7:49 PM, Pericles said:

the definition of `consumer' under the FDCPA includes consumers who have been alleged by debt collectors to owe debts

This is where the 7th gets it wrong imo.  They quoted this directly from the FDCPA then immediately proceeded to ignore it and add other requirements to the law.  This is part of my take on "legislating from the bench".  They want to change the language of the law to make the bar higher, when in fact the clear language of the FDCPA states that a consumer debt need only be ALLEGED by a creditor to make it so. @BV80

[BV80]

11 hours ago, fisthardcheese said:

This is where the 7th gets it wrong imo.  They quoted this directly from the FDCPA then immediately proceeded to ignore it and add other requirements to the law.  This is part of my take on "legislating from the bench".  They want to change the language of the law to make the bar higher, when in fact the clear language of the FDCPA states that a consumer debt need only be ALLEGED by a creditor to make it so. @BV80

Yes, it says “alleged obligation”, but look at the rest of the phrase.  It says “alleged obligation of a consumer to pay”.  The word “alleged” is describing an “obligation” (responsibility) to pay a specific type of debt.  In other words, a debt collector must allege the consumer is responsible for paying a consumer debt.  

However, “alleged” is not included in the upcoming description of what is considered to be that specific type of “debt”.

Here is the full definition:

The term “debt” means 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, whether or not such obligation has been reduced to judgment.”

The Act’s description of “debt” begins at “arising out of a transaction...”.  

If I understand you correctly, you are saying that all a consumer has to do is allege that the debt is a consumer debt and nothing else is required of him or her.   If that were the case, “allegedly” would have been included before the word “primarily” and would read:

”...subject of the transaction are allegedly primarily for personal, family, or household purposes...”

But that word is not included there.  As a result, the debt must be, not allegedly be, incurred for the reasons described. 

If all a consumer has to do is allege a debt is a consumer debt with no proof required if challenged by a debt collector, consumers could make that allegation about business debts and win which would go against the purpose of the Act.  

The following is from the 11th Circuit Court of Appeals in Hawthorne v. Mac Adjustment, Inc. (1998).

“By the plain terms of the statute, not all obligations to pay are considered ‘debts’ subject to the FDCPA.   Rather, the FDCPA may be triggered only when an obligation to pay arises out of a specified ‘transaction.’”

[Pericles]

The 7th cir. coa decision in Burton cites Loja which cites Dunham v. Portfolio Recovery Associates, LLC, 663 F. 3d 997 - Court of Appeals, 8th Circuit 2011.

In Dunham, it is clear that the plaintiff Dunham had nothing to do with the debt.

Quote

At Dunham's deposition, PRA discovered for the first time that Dunham's social security number does not match that of the actual debtor. PRA now concedes that Dunham does not owe the payment obligation.

 

In reviewing the lower court documents on pacer, PRA's summary motion argued not only that Dunham is not a "consumer" under the FDCPA, but also that Dunham failed to produce sufficient evidence to create a fact dispute regarding the nature of the debt.  The 8th cir. coa recounts those events in their decision;

Quote

But PRA disputes that Dunham has produced sufficient evidence to create fact issues regarding (1) whether he is a "consumer" as defined by the FDCPA; (2) whether the payment obligation that PRA sought to recoup was actually a "debt" as defined by the FDCPA (a determination that also turns on whether Dunham is a "consumer")

 

The 8th cir. coa goes to considerable lengths to explain why their interpretation of the fdcpa definition of "consumer" includes non-debtors.  But when it comes to the "debt" question, which PRA argued in the lower court just as vigorously, the 8th cir. coa has only this to say;

Quote

[4] In reaching the conclusion that PRA sufficiently verified the payment obligation, we do not reach the question of whether the payment obligation was a "debt" as defined in the FDCPA.

If the 8th cir. coa's conclusion about verification was sufficient to decide the case without considering the "debt" question, it was also sufficient to decide the case without considering the "consumer" question.  They opined on "consumer" not because it is any less important than "debt" (both are essential elements of any fdcpa claim), but because the "consumer" question is the far easier question to answer.

Both the lower court in Loja and the lower court in Dunham said essentially that the fdcpa's provisions do not provide a remedy to non-debtors.

The court of appeals disagreed in both cases.  They said the fdcpa is totally available to non-debtors.  So long as the non-debtor has sufficient evidence about the nature of the debt.  Never mind that we won't tell you what is sufficient, or in any way acknowledge that producing such evidence is essentially impossible for a non-debtor.

With a bona fide non-debtor as a client, Dunham's attorney did attempt some discovery to obtain evidence about the nature of the debt;

Quote

Dunham also moved for discovery sanctions on the ground that PRA belatedly produced a "seller survey," which, Dunham contends, indicates that the payment obligation at issue was a consumer debt.

Would the "seller survey" have been sufficient evidence about the nature of the debt?  Neither court thought that question was worth answering.

As noted in the dissent in Casillas, the 7th cir. coa seems to be requiring something like fact pleading at the summary judgment stage.  This sort of burden probably wouldn't fly in other circuits, such as the 9th;

Quote

We do not “weigh the evidence” or “make factual or credibility determinations” when assessing whether, on summary judgment, there is a genuine
issue of material fact. Fuller v. Idaho Dep’t of Corr., 865 F.3d 1154, 1161 (9th Cir. 2017). Here, the parties submitted “conflicting testimony” ... Accordingly, “the conflicting evidence submitted by [the parties] presented the district court with a genuine dispute of material fact ...

 

[fisthardcheese]

I guess the bigger problem is the disparity of rulings between all the circuits on this issue.