Opinion
No. 08-139-HU.
October 27, 2008
Gregory L. Abbott, Portland, Oregon, Attorney for plaintiff.
Jonathan Radmacher, Peter Stutheit, McEwen Gisvold LLP, Portland, Oregon, Attorneys for defendants.
OPINION AND ORDER
This is an action for violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 (FDCPA). Plaintiff Robin Avery asserts three claims for relief against First Resolution Investment Corporation (First Resolution) and its collections attorney, Dan Gordon and Daniel N. Gordon, PC (the Gordon defendants). All parties move for summary judgment. Avery also moves for a stay of proceedings on her third claim for relief.
Factual and Procedural Background
Robin Avery had a credit card account with Providian Bank. According to her declaration, "sometime after May 2001," she received from Providian an amended cardholder agreement dated "6/01." Declaration of Robin Avery ¶ 2, Exhibit 1, p. 7 ("the 6/01 Cardholder Agreement"). Defendants do not dispute that the 6/01 Cardholder Agreement governs Avery's account.
The 6/01 Cardholder Agreement had a choice of law provision calling for the application of federal law and the law of New Hampshire. Id. at Exhibit 1, p. 5. The law of New Hampshire provides for a three year statute of limitations on actions related to disputes over credit card accounts. N. H. Rev. Stat. Ann. 508:4; A B Lumber Co. v. Vrusho, 871 A.2d 64, 66 (N.H. 2005) (under New Hampshire law, contract claim must be brought within three years of breach).
Avery made a payment on her account in November 2001, but admits that she failed to make the next payment, which was due December 16, 2001. Avery Declaration ¶ 3.
The debt was sold to First Resolution. On February 9, 2006, First Resolution commenced a civil action in the Circuit Court of Oregon for Washington County in an attempt to collect the debt,First Resolution Investment Corp. v. Avery, No. 060477CV (the first Washington County action). Gordon Defendants' Concise Statement of Fact (CSF) No. 4. First Resolution was represented by Derrick McGavic and Kristin Finney. Id.
In September 2006, Finney was contacted by Avery's attorney, who told her he believed the first Washington County action was time-barred. Soon thereafter, First Resolution filed a motion to dismiss the Washington County action without prejudice. The Washington County action was dismissed without prejudice on October 11, 2006. Gordon Defendants' CSF No. 7.
On December 19, 2006, Avery brought an action in this court,Avery v. First Resolution Investment Corp. et al., CV 06-1812-HA, against First Resolution, Mr. McGavic and Ms. Finney, asserting claims for violation of the FDCPA and the Fair Credit Reporting Act, 15 U.S.C. § 1681 (the first federal action). Declaration of Daniel Gordon, Exhibit F. The claims were based on First Resolution's attempt to collect on the debt in the first Washington County action after expiration of the statute of limitations. Id. The governing cardholder agreement was not attached to the complaint. Although Avery alleged that the defendants had attempted to collect interest, fees and charges not authorized by the agreement or permitted by law, she did not specify the amount defendants had attempted to collect or the amount of the debt she owed, if any. Id.
On January 31, 2007, First Resolution, represented by the Gordon defendants, asserted a counterclaim against Avery in the first federal action, alleging that Avery owed First Resolution $3,807.28 as of June 24, 2002. Gordon Declaration, Exhibit C. As part of the counterclaim, First Resolution attached a copy of a cardholder agreement which it alleged was the basis for Avery's liability, dated "11/00" with an amendment dated "5/01" ("the 11/00 Cardholder Agreement"). Id.; Plaintiff's CSF, Exhibit A.
On cross motions for partial summary judgment, Judge Haggerty issued an Opinion and Order on May 25, 2007. Gordon Declaration, Exhibit A; see also Avery v. First Resolution Inv. Corp., CV 06-1812-HA, doc. #47. In the Opinion and Order, Judge Haggerty held that collection of the debt was not time-barred under the laws of New Hampshire. Id. Judge Haggerty's reasoning was that under New Hampshire law, the statute of limitations is tolled during a party's absence from the state. Since Avery never lived in New Hampshire and was never there, the three year statute of limitations was tolled.
Judge Haggerty acknowledged that the New Hampshire tolling provision would preclude the statute of limitations from ever running on the underlying debt. Id. at p. 9. To resolve this problem, Judge Haggerty applied Oregon's limitation provision:
If the court determines that the limitation period of another state applicable under ORS 12.430 and 12.440 is substantially different from the limitation period of this state and has not afforded a fair opportunity to sue upon, or imposes an unfair burden in defending against the claim, the limitation period of this state applies.
Or. Rev. Stat. § 12.450. Since Oregon law provides a six year statute of limitations for breach of contract claims, Or. Rev. Stat. § 12.090, Judge Haggerty concluded that under Oregon law the statute of limitations on Avery's debt would not expire until November 5, 2007, making the first Washington County action timely. Id. Accordingly, Judge Haggerty granted First Resolution's motion for partial summary judgment and denied Avery's motion for partial summary judgment. Id.
Judge Haggerty declined to take supplemental jurisdiction over the counterclaim. Id. On August 6, 2007, the parties submitted a proposed form of stipulated judgment (doc. # 56) dismissing Avery's complaint with prejudice. On August 7, 2007, Judge Haggerty entered a judgment dismissing Avery's complaint with prejudice and dismissing First Resolution's counterclaim without prejudice. (Doc. # 57). On August 17, 2007, Avery appealed Judge Haggerty's ruling that the first Washington County action was timely under New Hampshire law, and the dismissal of her FDCPA claim based on the filing of the first Washington County action. (Doc. # 59); Plaintiff's CSF Exhibit B, ¶ 32. That appeal is still pending.
Meanwhile, on June 8, 2007, First Resolution had commenced another action in Washington County, First Resolution Investment Corp. v. Avery, No. 072380CV (the second Washington County action). Abbott Declaration, Exhibit 1 and Plaintiff's CSF Exhibit B. In the complaint, First Resolution demanded the sum of $3,807.28, plus interest at the rate of 23.99% per annum from June 24, 2002, till paid. Abbott Declaration, Exhibit 1. Attached to the complaint was a cardholder agreement showing a date of "9/00." Id.
A stipulated document entitled "Submission of Controversy" was filed in the second Washington County case, stating that the amount owed at the time of default on December 16, 2001 was $2,971.82 plus interest at 23.99% per annum, for a total due as of December 16, 2001 of $3,021.04. Plaintiff's CSF Exhibit B, ¶ 13.
On January 31, 2008, Avery filed the present action in this court, based on the counterclaim filed by First Resolution and the Gordon Defendants in the first federal action. She claimed statutory damages under the FDCPA for First Resolution's attempt to collect more than was authorized by the 6/01 Cardholder Agreement and for its attempt to collect a debt pursuant to the terms of an invalid cardholder agreement, i.e., the 11/00 Cardholder Agreement attached to the counterclaim; she also sought to preserve her rights if the Court of Appeals reversed Judge Haggerty's ruling that First Resolution's action on Avery's debt was not time-barred.
On August 8, 2007, Avery filed a motion to dismiss the second Washington County case, on the ground that another action was pending between the same parties for the same cause of action. The motion was denied on November 28, 2007. Plaintiff's CSF, Exhibit B, ¶¶ 24, 31. The parties stipulated to facts for trial. See Plaintiff's CSF, Exhibit B.
Standard
The FDCPA prohibits false, deceptive, misleading, unfair or harassing collection practices, 15 U.S.C. § 1692e. Baker v. G.C. Services Corp., 677 F.2d 775 (9th Cir. 1982). Among the misrepresentations explicitly prohibited by the FDCPA are 1) the false representation of the character, amount or legal status of any debt, 15 U.S.C. § 1692e(2)(A); 2) the threat to take any action that cannot legally be taken or that is not intended to be taken, 15 U.S.C. § 1692e(5); and communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a debt is disputed, 15 U.S.C. § 1692e(8). The court determines whether a communication violates the FDCPA by inquiring whether it is "likely to deceive or mislead a hypothetical `least sophisticated debtor.'" Wade v. Regional Credit Ass'n, 87 F.3d 1098, 1100 (9th Cir. 1996).
The FDCPA regulates the conduct of "any person" in "any business" whose 1) principal purpose is debt collection, or 2) who regularly collects or attempts to collect debts, directly or indirectly. 15 U.S.C. § 1692a(6). In Heintz v. Jenkins, 514 U.S. 291, 297 (1995), the Supreme Court held that debt collectors may include attorneys litigating cases on behalf of their clients: "[L]itigating . . . seems simply one way of collecting a debt." A lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly "attempts" to "collect" those consumer debts. Id.
Section 1692k provides for two different causes of action, a compensatory one under § 1692(a)(1), which provides the injured person a remedy for actual and additional damages for a debt collector's failure to comply with the FDCPA, and a regulatory one under § 1692k(a)(2)(A) which allows the court to award additional or statutory damages not exceeding $1,000 per proceeding, per defendant, without regard to the actual number of violations and without proof of actual damages. These so-called statutory damages are awarded based upon mandatory consideration of certain factors. Id. at § 1692(k). The FDCPA has been construed as a strict liability statute, subject to a bona fide error defense. See § 1692(a)-(d); Clark v. Capital Credit Collection Services, 460 F.3d 1162, 1176 n. 11 (9th Cir. 2006).
Discussion
A. Avery's Motion for Summary Judgment and Stay on Third Claim
Avery's three causes of action are for 1) attempted collection of unauthorized charges, based on incorrect allegations of the amount due (i.e., the inconsistency between the stipulation in the second Washington County action that the amount of the debt was $3,021.04, and the demand for $3,807.28, on the counterclaim of the first federal action); 2) attempted collection based on an invalid cardholder agreement (i.e., the allegation in the counterclaim that the 11/00 cardholder agreement applied, even though the defendants do not now dispute that the 6/01 cardholder agreement is applicable); and 3) attempted collection of a time-barred debt.
Avery asserts that there are no genuine issues of material fact on the first two claims and that she is entitled to judgment as a matter of law. She asks that the court enter a stay of proceedings on her third claim pending the appeal of Judge Haggerty's ruling.
1. Attempted collection of unauthorized charges
In the first federal action, First Resolution counterclaimed for the sum of $3,807.28 plus 23.99% per annum interest from June 24, 2002 until paid. See Plaintiff's CSF Exhibit A (First Resolution's counterclaim). Avery directs the court to the Submission of Controversy submitted in the second Washington County Action, where First Resolution stipulated that the amount owed was $3,021.04, plus interest at 23.99%, as of December 16, 2001. See id. Exhibit B, ¶ 13. Avery argues that 23.99% interest accrued on $3,021.04 to June 24, 2001 would yield a total of $3,398.30, not $3,807.28. Thus, she argues, First Resolution demanded, in the first federal action, $408.98 more than the amount First Resolution agreed was due in the second Washington County action.
I am unpersuaded by Avery's argument that she is entitled to summary judgment on her FDCPA claim based on the different amounts claimed. The stipulation in the second Washington County action, which was for less than the amount originally demanded in the counterclaim, does not constitute an admission that the amount demanded in the counterclaim was incorrect. Further, the absence of any definitive calculation, by either side, of the amount actually due under the 6/01 cardholder agreement precludes a finding that there is no genuine issue of material fact on this issue. The court is unable, on this record, to conclude that no reasonable jury could find that the amount owed was any amount other than the amount on the spreadsheet proffered by Avery, or the amount claimed by First Resolution, or the amount shown on the billing statements. Neither side is entitled to summary judgment.
2. Invalid cardholder agreement
In the first federal action, First Resolution alleged that Avery was liable pursuant to the terms of the 11/00 Cardholder Agreement, as amended and superseded by the terms of the 5/01 Cardholder Agreement. Avery asserts that the governing agreement is the 6/01 Cardholder Agreement. Defendants do not dispute this assertion. The terms of the two agreements are materially different, particularly because the 6/01 Cardholder Agreement has a grace period and no annual fee, but also because the fees for cash advances under the 11/00 Cardholder Agreement are 5% while the 6/01 Cardholder Agreement only charges 3%. Further, the 5/01 Amendment to the 11/00 Cardholder Agreement provides for a 27.99% APR, while the 6/01 Cardholder Agreement provided for finance charges at 23.99% APR.
Avery asserts that First Resolution's allegation in the first federal action that the debt was governed by the 11/00 Cardholder Agreement, rather than the 6/01 Cardholder Agreement, constituted 1) false representation of the character, amount or legal status of the debt; 2) a false representation that Avery was liable for the debt pursuant to terms that did not apply to her debt; and 3) the use of a false, deceptive, or misleading representation in connection with collection of the debt, all in violation of 15 U.S.C. § 1692(e).
Since Avery incurred no damages as a result of this conduct, she asks the court to award her $1,000 per defendant as statutory damages, along with her costs and attorney's fees.
Defendants respond that Avery has not met her burden of showing "with specificity" how a particular action "falsely represents the character, amount or legal status" of a debt, citing Dunlap v. Credit Protection Association, LP, 49 F.3d 1011 (9th Cir. 2005). They argue that the mere attachment of the 11/00 Cardholder Agreement to the counterclaim was not necessarily a misrepresentation of the character, amount or legal status of the debt, because 1) it is undisputed that the debt was a credit card debt, and it is undisputed that defendants represented it as such in the counterclaim; 2) there is no evidence that defendants sought to collect anything more than what Avery actually owed; and 3) defendants did not misrepresent the "legal status" of the debt, because Avery concedes that she used the card and defaulted on her payment obligations. Plaintiff's CSF 1, 2. Defendants assert that they accurately represented the "legal status" of default in the counterclaim, irrespective of which cardholder agreement they attached.
Defendants also challenge Avery's claim that defendants "falsely represented that plaintiff was liable for the Debt pursuant to terms that did not apply." Again, defendants argue that merely attaching the 11/00 Cardholder Agreement fails to qualify as specific identification of, and evidence supporting, an alleged misrepresentation of the debt under Dunlap. They contend that while Avery may have identified differences between certain terms of the 6/01 Cardholder Agreement and the 11/00 Cardholder Agreement, she has presented no evidence that the $3,807.12 sought in the counterclaim was not authorized by the 6/01 Cardholder Agreement. Defendants assert that merely attaching a superseded agreement, without attempting to collect anything pursuant to the terms of that agreement, does not violate the FDCPA.
In her reply, Avery argues that defendants themselves alleged in their counterclaim all the facts necessary to make out her claim: that pursuant to the Cardholder Agreement, Avery purchased goods, merchandise, and/or services and/or received advances using credit card under the agreement, that each use of the card constituted an agreement to be bound by the agreement, and that Avery breached and was in default of the agreement by failing to make the monthly payments. Avery contends that the defendants also sought to collect attorney fees in the counterclaim by alleging that in the Cardholder Agreement, Avery had promised to pay collection costs incurred, including attorney's fees, and that First Resolution was entitled to those attorney's fees and costs. See Gordon Declaration, Exhibit C; Plaintiff's CSF Exhibit A (counterclaim). She asserts that all these statements were false because she did not purchase anything under the 11/00 Cardholder Agreement attached to the counterclaim, so that each use of the credit card did not constitute her agreement to be bound by its terms, she was not in breach, was not in default of the 11/00 Cardholder Agreement, and did not agree to pay attorney's fees and costs under the 11/00 Cardholder Agreement.
She argues that this claim is based upon defendants' false representations and allegations as to the basis of her liability for the debt, not the amount; because defendants' representations in their counterclaim were false, and the applicable agreement is the 6/01 Cardholder Agreement, they are liable under the FDCPA.
Defendants have not demonstrated the existence of a genuine issue of material fact on this claim. Avery's motion for summary judgment is granted.
3. Attempted collection of a time-barred debt
Avery asserts that this claim is brought on a precautionary basis, to preserve it if Judge Haggerty's ruling in the first federal action is reversed. Avery asks the court to stay all proceedings under this claim pending the ruling of the Court of Appeals.
Defendants challenge Avery's request for a stay, arguing that the court is precluded from granting the request by Judge Haggerty's Opinion and Order. Defendants rely on Tripati v. Henman, 857 F.2d 1366, 1368 (9th Cir. 1988):
[t]he established rule in the federal courts is that a final judgment retains all of its res judicata consequences pending decision of the appeal. To deny preclusion in these circumstances would lead to an absurd result: Litigants would be able to refile identical cases while appeals are pending, enmeshing their opponents and the court system in tangles of duplicative litigation.
(internal citations and quotations omitted). Defendants point out that Avery has now filed three FDCPA cases in this court, all asserting that the statute of limitations on the debt expired in November 2001: the first federal action, this action, and Avery v. Aylsworth, CV 08-695-HA, filed after this action in June 2008.
In reply, Avery asserts that defendants have pointed to no prejudice to them that would be caused by a stay and that a stay, being equitable in nature, is well within the court's discretion. She also points out that to the extent she prevails on her other two claims for relief, and is awarded the full $1,000 per defendant, the third claim for relief would become moot.
Avery's motion for stay of proceedings on her third claim for relief is denied. Defendants' motion against the third claim for relief, on the merits, is discussed below.
B. Defendants' Motions for Summary Judgment
The Gordon defendants move for summary judgment in their favor on the following grounds:
First, that Avery's claims are barred by the FDCPA's one-year statute of limitations.
Second, that her claims fail as a matter of law because defendants never communicated directly with her in connection with the counterclaim; all communications were through lawyers.
Third, that Avery's third claim for relief, which is that First Resolution's counterclaim in the first federal action was beyond the statute of limitations, is barred by issue preclusion.
Fourth, that defendants are entitled to summary judgment under the FDCPA's bona fide error defense, based on the reliance of the Gordon defendants on information provided by First Resolution and procedures he maintains to avoid errors in collections actions.
Defendant First Resolution incorporates by reference all arguments of the Gordon defendants and adds another, which is that all of Avery's claims, and not just the third, are precluded by the judgment entered by Judge Haggerty.
Avery objects to the court's consideration of First Resolution's motion for summary judgment because First Resolution has not submitted its own Concise Statement of Fact, as required by LR 56.1(a)(2), and has not specifically incorporated any arguments, briefing or documents from the Gordon defendants' motion. The objection is overruled.
1. FDCPA claims time-barred
The defendants rely on the FDCPA's statute of limitations, which provides that actions to enforce liability for violations of the FDCPA must be brought "within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d). When the alleged violation is the filing of a complaint, the statute begins to run on the day the complaint is filed. Naas v. Stolman, 130 F.3d 892, 893 (9th Cir. 1997) (filing date was the debt collector's "last opportunity to comply with the Act"). Id.
The counterclaim was filed in the first federal action on January 31, 2007. Defendants argue that the statute of limitations expired 365 days later, on January 30, 2008, citing an Eighth Circuit case, Mattson v. U.S. West Communications, 967 F.2d 259 (8th Cir. 1992). The present action was filed on January 31, 2008.
Avery challenges the authority of Mattson, arguing that every other circuit to have considered the issue has rejected the holding in Mattson. [Citing Johnson v. Riddle, 305 F.3d 1107 (10th Cir. 2002); Maloy v. Phillips, 64 F.3d 607 (11th Cir. 1995); and Clark v. Bonded Adjustment Co., 176 F. Supp.2d 1062 (E.D. Wash. 2001)]. In Riddle, the court found Mattson "dubious authority" because it relied for its conclusion on a single case, Rust v. Quality Car Corral, Inc., 614 F.2d 1118 (6th Cir. 1980), and the Rust case has since been overruled on the same grounds by the Sixth Circuit, Bartlik v. United States Dept. of Labor, 62 F.3d 163, 166 (6th Cir. 1995) (en banc) (holding that computation of time under the Energy Reorganization Act, providing for judicial review within 60 days of the issuance of the Secretary's order, was governed by Rule 6(a), which added a 61st day because the last day was a Sunday).6
In this jurisdiction, "one year" means one calendar year, not 365 days. United States v. Tawab, 984 F.2d 1533, 1534 (9th Cir. 1993). In the Clark case, the court relied on Tawab to conclude that an action for violation of the FDCPA was timely because it was filed on the first week day after the violation. The Clark court noted that some courts had found Rule 6(a) not applicable to the FDCPA, specifically the Mattson case, but declined to follow the rationale of Mattson, instead adopting the view taken by the Eleventh Circuit in Maloy. The Clark court also acknowledged that in Morgovsky v. Creditors Collection Svc. of San Francisco, 1995 WL 316970 at *1, 2 (N.D. Cal. 1995), the district court had adopted Mattson's holding; the Clark court declined to follow Morgovsky because that decision, like Mattson, did not involve analysis of the statutory text or legislative history.
I find the Clark case persuasive. Because the counterclaim was filed January 31, 2007, the statute of limitations began to run on that date; this action, filed January 31, 2008, is therefore timely under the FDCPA's one year statute of limitations. The defendants' motion for partial summary judgment on limitations grounds is therefore denied.
2. No direct communication
Defendants assert that Avery's claims fail as a matter of law because it is undisputed that in serving the counterclaim electronically, defendants communicated only with Avery's attorney, and never with her directly. Daniel Gordon states in his Declaration that because Avery was represented by an attorney at the time he began collection attempts (i.e., at the time he filed the counterclaim in the first federal action), he never contacted Avery about the debt.
Under the FDCPA, a debt collector may not communicate with a consumer if the debt collector knows the consumer is represented by an attorney. 15 U.S.C. § 1692c(a)(2).
The defendants argue that in this jurisdiction, communications directed solely at a debtor's attorney do not violate the FDCPA as a matter of law, citing Guerrero v. RJM Acquisitions LLC, 499 F.3d 926 (9th Cir. 2007) (debt collector's misleading communications to debtor's attorney, not to debtor, not actionable under FDCPA). They contend that this rule is consistent with the purpose of the statute, which was enacted to protect vulnerable and unsophisticated debtors from abuse, harassment and deceptive collection practices. See S. Rep. 95-382, reprinted in 1977 U.S.C.C.A.N. 1695, 1696; Guerrero, 499 F.3d at 935. Defendants argue that the FDCPA's concerns are particularly inapplicable when the communication at issue is a pleading, because a pleading is "not a demand to the debtor," quoting Argentieri v. Fisher Landscapes, 15 F. Supp.2d 55 (D. Mass. 1998) (unfounded request for attorneys fees in state court complaint not a violation of FDCPA). Defendants argue that Avery's first and second claims for relief, which are based on allegations made in the counterclaim, fail as a matter of law because they were not demands made on Avery directly.
Avery counters that Guerrero is limited to extrajudicial communications and does not extend to misrepresentations during litigation, citing Heintz, 514 U.S. at 297 (statutory term "debt collector" includes attorneys and others engaged in litigation). Avery distinguishes Guerrero on the ground that it involved communication directed solely at the attorney, unaccompanied by any threat to the debtor. 499 F.3d at 936. The court emphasized that
the Act applies to conduct aimed at a debtor himself regardless of whether he has retained counsel. We merely hold that when the debt collector ceases contact with the debtor, and instead communicates exclusively with an attorney hired to represent the debtor in the matter, the Act's strictures no longer apply to those communications.499 F.3d at 939.
Avery also challenges the defendants' characterization of the holding in Guerrero, arguing that the FDCPA distinguishes between regulation of collection activity and regulation of communication, having separate provisions that deal with communication. See, (e.g., §§ 1692b (communication with third parties to obtain location information), 1692c (conduct actionable as communication), 1692e(3) (false communication), 1692e(8) (communication of credit information), 1692e(9) (regulating written communication) 1692e(11) (disclosures in communications), 1692f(5) (charges related to communications), 1692f(7) (communication through the mail), 1692f(8) (communication through the mail), and 1692g (disclosure of consumer rights). She contends that the distinction between regulation of collection activity and regulation of communication is also seen in a recent amendment to the FDCPA, with § 1692g(b) expressly distinguishing between collection activities and communications, and § 1692g(d) excluding § 1692g(a) from formal pleadings in a civil action.
Avery argues that the construction sought by the Gordon defendants was decided adversely to them in Heintz, where the Supreme Court held that the FDCPA applies to attorneys even when the collection activity consists of litigation. Further, she argues, the court in Guerrero qualified the communication at issue as a responsive letter to an attorney's letter, one which was directed exclusively at the attorney.
I find Avery's arguments persuasive, and additionally conclude that a counterclaim for a debt is not a representation made to an attorney, but rather a demand for money made on the debtor, through a pleading rather than a letter or a phone call. UnderGuerrero the issue is whether the conduct is aimed at the debtor, regardless of whether the debtor has a lawyer. The Guerrero court held that the letter from the debt collector was directed solely at the creditor's lawyer, because the letter stated that defendant was not a "collection agency," which was true, and that it was therefore not subject to the FDCPA, which was not true.
Unlike the letter in Guerrero, the counterclaim in the first federal action was directed, not to Avery's attorney, but at Avery. Guerrero is distinguishable from this case. Defendants' motion for summary judgment on this basis is denied.
3. Claim preclusion
The defendants argue that under the doctrine of claim preclusion, Judge Haggerty's ruling bars Avery from asserting her third claim for relief, which is for violation of the FDCPA based on a collection action that is not timely.
The defendants argue, correctly, that the judgment entered by Judge Haggerty retains its preclusive effect while an appeal is pending. Collins v. D. R. Horton, Inc., 505 F.3d 874, 883 (9th Cir. 2007). I agree Avery's third claim for relief is barred by claim preclusion.
First Resolution has a separate claim preclusion argument, arguing that the first and second claims for relief in this case were also asserted in the first federal action, so that Avery's dismissal with prejudice of her claims against First Resolution prejudice in the first federal action, except for her claim that the debt was time-barred, bars the assertion of the first and second claims for relief here.
The complaint filed in the first federal action, Declaration of Daniel Gordon Exhibit F, names defendants First Resolution, Mr. McGavic, and Ms. Finney, the latter two being the lawyers who represented First Resolution in the first Washington County action. The complaint alleges claims for violation of the FDCPA based on the filing of the first Washington County action.
Avery argues that claim preclusion does not apply because the parties and claims in the first federal action are not the same parties named and claims asserted in this action. She contends that at the time the first federal action was filed, her first and second claims for relief in this case did not yet exist, because they are based on the counterclaim filed in that action. She argues that she has not had any prior opportunity to litigate the first and second claims for relief in this case.
I agree with Ms. Avery's contention that the first and second claims for relief in this case are premised on the counterclaim filed in the first federal action: the allegation that the 11/00 cardholder agreement, as amended in May 2001, governed the debt; and the allegation that in the counterclaim, First Resolution attempted to collect more than was authorized by the 6/01 cardholder agreement. Neither of these claims was dismissed when Avery dismissed her complaint in the first federal action, because Avery's complaint in the first federal action did not refer to or incorporate a specific cardholder agreement. Further, as I have concluded, the issue of how much Avery owes First Resolution under the terms of the 6/01 cardholder agreement is a question of fact that has never been determined. First Resolution's motion for summary judgment on the first and second claims for relief, based on claim preclusion, is denied.
4. Bona fide error defense
The Gordon defendants move for summary judgment in their favor based on the bona fide error defense.
Section 1692k(c) provides that a debt collector
may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
The FDCPA makes debt collectors liable for violations that are not knowing or intentional; the bona fide error defense provides a "narrow exception to strict liability." Reichert v. National Credit Systems, Inc., 531 F.3d 1002, 1005 (9th Cir. 2008). The bona fide error defense is an affirmative defense, for which the debt collector has the burden of proof. Reichert, 531 F.3d at 1006; Fox v. Citicorp Credit Servs., Inc., 15 F.3d 1507, 1514 (9th Cir. 1994).
The Gordon defendants assert that as a matter of law, they were entitled to rely on representations from First Resolution about the validity of the debt, and that the FDCPA does not require an independent investigation of the information provided by clients when a debt collector tries to collect a debt. The Gordon defendants rely on Hulse v. Ocwen Federal Bank, 195 F. Supp.2d 1188, 1210 (D. Or. 2002), and on the Ninth Circuit decision inClark. In Clark, the court quoted with approval district court cases from other jurisdictions holding that a debt collector may reasonably rely upon information provided by a creditor who has provided accurate information in the past. The Clark court also held, consistent with the Hulse decision, that the FDCPA does not impose upon debt collectors any duty to investigate independently the claims presented by the creditor. The Clark case adopted "as a baseline" the holding of the Fourth Circuit in Chaudhry v. Gallerizzo, 174 F.3d 394 (4th Cir. 1999) that at a minimum, "verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed." Clark, 460 F.3d at 1173-74.
However, the bona fide error defense does not protect a debt collector whose reliance on a creditor's representation is unreasonable. Reichert, 531 F.3d at 1006; Clark, 460 F.3d at 1177. A debt collector also fails to meet its burden under the defense when it fails to produce evidence of "reasonable preventive procedures" aimed at avoiding the errors. Reichert, 531 F.3d at 1006.
Daniel Gordon has submitted a declaration stating that when he represented First Resolution in the first federal action, he was directed by First Resolution to obtain Mr. McGavic's file and to use the information in that file to prosecute the counterclaim. Gordon states that he reasonably relied on the information in the McGavick file when he filed the counterclaim; that he had previously represented First Resolution; and that First Resolution had been reliable in the past.
Gordon states that he maintains many procedures to prevent FDCPA violations, including employing a compliance officer, requiring that new employees pass a test on the FDCPA, testing employees yearly on the FDCPA, scrubbing new files upon intake to determine whether the debtor has filed for bankruptcy or is deceased, periodically checking all files in the office to determine that the debt is within the applicable statute of limitations, contacting the creditor upon receiving a claim from a debtor disputing the amount or existence of the debt, and ceasing collection efforts if he is not satisfied, after consulting with the creditor, that the debtor owes the debt.
In Reichert, the court held that the question whether the debt collector has made a sufficient showing that it employed procedures "reasonably adapted to avoid the error that occurred" [sic] is a "fact intensive inquiry that few prior cases have addressed." 531 F.3d at 1006.
I conclude, on the basis of the record before me, that a genuine issue of material fact exists on whether 1) Gordon's reliance on First Resolution and the McGavic file was reasonable; and 2) whether the Gordon defendants' office procedures would reasonably be expected to prevent the errors at issue in this case. Accordingly, the Gordon defendants' motion for summary judgment in their favor on the bona fide error defense is denied.
Conclusion
Avery's motion for summary judgment (doc. # 22) is GRANTED for her second claim for relief, based on an invalid cardholder agreement, and DENIED on the first and third claims for relief, based on the amount of the debt and the filing of a time-barred action. Avery's motion for a stay of proceedings on the third claim for relief (doc. # 22) is DENIED.
The defendants' motions for summary judgment (doc. ## 15, 16) are DENIED for the first and second claims for relief, and GRANTED for the third claim for relief. The Gordon defendants' motion for summary judgment on the bona fide error defense (doc. # 16) is DENIED.
Plaintiff's third claim for relief is dismissed with prejudice.
IT IS SO ORDERED.