Opinion
Cause No. IP02-0192-C-H/K
March 31, 2003
ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This cause is before the court on cross motions for summary judgment filed by plaintiff Nora Bernstein and defendant Howard Howe, as well as a related motion to strike filed by defendant Howe. The motions are fully briefed, and the court, being duly advised, DENIES the motion to strike and GRANTS IN PART AND DENIES IN PART both summary judgment motions for the reasons set forth below.
Motion to Strike
Howe filed a motion to strike Bernstein's Reply in Support of Motion for Summary Judgment and Response to Defendant's Motion for Summary Judgment because it was filed one day late. While the court certainly could exercise its discretion and strike this untimely brief, it will not do so in this instance for being just one day overdue. Howe further moves to strike the brief because it "makes arguments and asserts claims never before made and which are now barred by the statute of limitations." Howe's Motion at 2, ¶ 5. The fact that a brief contains legal arguments that may be incorrect is not a reason to move to strike it. Further, Howe has had the opportunity to respond to any new arguments raised by Bernstein in his own reply brief, and therefore has not been prejudiced in any way by Bernstein's raising of these argument. Accordingly, the motion to strike is DENIED. The substance of Howe's argument regarding the new issues raised by Bernstein is addressed below.
Facts Relevant to the Motions for Summary Judgment
The basic relevant facts are entirely undisputed by the parties. Howe, acting as a debt collector as that term is defined by the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692a(6), sent a letter dated February 5, 2001, to Bernstein in an attempt to collect on a credit card debt that she allegedly owed. The letter stated, in relevant part:
RE: Debt owed to Amresco Bureaus Investors — First Card by Nora Angeles Amount: 4,401.28 plus interest and attorneys fees . . .
As the caption of this case indicates, Bernstein was formerly known as Nora Angeles.
Dear Ms. Angeles:
I have been retained to collect the above-described account.
Previous correspondence to you has not resulted in resolution of this matter. I am authorized to enter into an amicable settlement or to go forward with further efforts to collect this debt. Please call to make arrangements for payment of this debt within ten days of the date of this letter.
The letter also contains the following notice after the signature line:
NOTICE
We will assume this debt to be valid unless you dispute the validity of all or any part of it within 30 days of receipt of this letter. If you notify us in writing that you dispute all or a portion of the debt, we will obtain and send to you verification of the debt or a copy of the judgment against you. Upon written request within 30 days after the receipt of this notice, we will provide you with the name and address of the original creditor, if different from the creditor named above. ***This communication is from a debtor [sic.] collector. This is an attempt to collect a debt. Any information obtained will be used for that purpose.
Additional facts are discussed below as relevant.
Discussion Bernstein argues that Howe's letter violated the FDCPA's requirement that a debt collector provide a consumer debtor with written notice that, inter alia, the consumer has thirty days within which to dispute the validity of the debt and require the debt collector to obtain verification of the debt and provide it to the consumer. 15 U.S.C. § 1692g(a)(4). While the statutorily required information is undisputedly included in the "NOTICE" portion of Howe's letter, Bernstein argues that the language earlier in the letter directing her to call within ten days "to make arrangements for payment of this debt" contradicts the statutorily required language, making the letter confusing and misleading in violation of the FDCPA.
The FDCPA was enacted to "eliminate abusive debt collection practices by debt collectors . . . and . . . to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e). While the FDCPA provides for specific information that must be provided by a debt collector to a consumer debtor, such as that set forth in § 1692g, providing the required information is not necessarily sufficient to avoid liability under the act. Rather, the Seventh Circuit has held that "a violation of the FDCPA occurs when a dunning letter is confusing to the unsophisticated reader, even if the letter technically complies with the FDCPA by including the required validation notice." Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000).
Debt collectors may not defeat the statute's purpose by making the required disclosures in a form or within a context in which they are unlikely to be understood by the unsophisticated debtors who are the particular objects of the statute's solicitude. The key consideration is that the unsophisticated consumer is to be protected against confusion whatever form it takes. In analyzing dunning letters under the FDCPA, the critical question is whether a dunning letter is confusing.
Id. (internal quotation marks and citations omitted). The "unsophisticated debtor" is assumed to be uneducated, uninformed, naive, and trusting. See Avila v. Rubin, 84 F.3d 222, 226 (7th Cir. 1996).
However, "our uneducated debtor possesses rudimentary knowledge about the financial world, is wise enough to read collection notices with added care, possesses `reasonable intelligence,' and is capable of making basic logical deductions and inferences." Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir. 2000). Thus, under the unsophisticated debtor standard, a statement will not be confusing or misleading unless a significant fraction of the population would be similarly misled; debt collectors are not liable for "unrealistic or peculiar interpretations of collection letters." Gammon v. GC Servs. Ltd., 27 F.3d 1254, 1257 1260 (7th Cir. 1994).
Bernstein cites three cases in which the Seventh Circuit discussed letters similar to the one at issue in this case. In Chauncey v. JDR Recovery Corp., 118 F.3d 516 (7th Cir. 1997), the plaintiff received a letter that included the following language along with the required statutory notice: "Unless we receive a check or money order for the balance, in full, within thirty (30) days from the receipt of this letter, a decision to pursue other avenues to collect the amount due will be made." Id. at 518. The court held that this language "contradict[ed] the language in the letter explaining the plaintiff's validation rights under the FDCPA . . . [and] would leave an unsophisticated consumer confused as to what his rights are." Id. at 519. Therefore, the letter violated the FDCPA. Id. In Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997), the letter at issue read, in relevant part:
if you wish to resolve this matter before legal action is commenced, you must do one of two things within one week of the date of this letter: pay $316 toward the satisfaction of the debt, or get in touch with [the creditor] and make suitable arrangements for payment. If you do neither, it will be assumed that legal action will be necessary.
Id. at 499 (internal quotation marks omitted). Again, the court determined that this language violated the FDCPA by impermissibly contradicting the statutorily required language elsewhere in the letter regarding the plaintiff's validation rights:
On the one hand, Heibl's letter tells the debtor that if he doesn't pay within a week he's going to be sued. On the other hand, it tells him that he can contest the debt within thirty days. This leaves up in the air what happens if he is sued on the eighth day, say, and disputes the debt on the tenth day. He might well wonder what good it would do him to dispute the debt if he can't stave off a lawsuit. The net effect of the juxtaposition of the one-week and thirty-day crucial periods is to turn the required disclosure into legal gibberish. That's as bad as an outright contradiction.
Id. at 501. Similarly, in Avila, 84 F.3d 222, also cited by the plaintiff, the court found that letters in which the statutorily required validation language was followed with the "confusing statement" that "[i]f the above does not apply to you, we shall expect payment or arrangements for payment to be made within ten (10) days from the date of this letter" and then the threat of a civil suit or "additional proceedings" if payment was not received violated the FDCPA. Id. at 226.
As noted above, the letters at issue in Chauncey, Bartlett, and Avila are similar to the letter at issue in this case in that each instructs the debtor that payment or arrangements for payment should be made by a date prior to the expiration of the thirty-day period provided for demanding validation of the debt. However, there is one difference: the letters found in violation of the FDCPA by the Seventh Circuit each contained the threat that legal action (or, in the case of Chauncey, "other avenues" of collecting the debt) would be pursued if the shorter deadline was not met, while in the instant case no such threat was made. The court finds this distinction to be critical. In the absence of a threat of serious consequences if arrangements for payment are not made, Howe's letter is simply a request that Bernstein contact him to discuss payment of the debt, albeit within ten days. Obviously, what a debt collector wants is for the debt to be paid, and there is nothing confusing about a debt collection letter which requests payment. Bernstein cites no case in which such a request, by itself, was deemed to contradict the statutorily required language and therefore violate the FDCPA, and the court's research has unearthed none. Rather, the court believes that impermissible confusion arises when such a request (or, more often, demand) is accompanied by a threat that failure to pay within a given time frame will result in serious consequences such as a lawsuit, without an explanation of how the creditor's right to file suit is consistent with the debtor's right to seek validation of the debt. See Bartlett, 128 F.3d at 500. Because Howe's letter did not contain such a threat, the court finds, as a matter of law, that it did not violate the FDCPA. Accordingly, Bernstein's motion for summary judgment is DENIED and Howe's motion for summary judgment is GRANTED as to that claim.
Next, Bernstein asserts that the statement in Howe's letter that the amount owed by Bernstein was "$4,401.28 plus interest and attorneys fees" violated the FDCPA in two respects. First, Bernstein argues that by not assigning a dollar amount to the interest owed, the letter violated the FDCPA's requirement that a debt collection letter state the amount of the debt owed, 15 U.S.C. § 1692g(a)(1). Bernstein is correct that the Seventh Circuit has held it to be a violation of the FDCPA for a debt collection letter to state, as Howe's letter did, that the amount owed is a sum certain "plus interest." Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 875-76 (7th Cir. 2000). The Miller court explained:
The unpaid principal balance is not the debt; it is only part of the debt; the Act requires statement of the debt. . . . It is no excuse that it was "impossible" for the defendants to comply when as in this case the amount of the debt changes daily. What would or might be impossible for the defendants to do would be to determine what the amount of the debt might be at some future date if for example the interest rate in the loan agreement was variable. What they certainly could do was to state the total amount due-interest and other charges as well as principal-on the date the dunning letter was sent. We think the statute required this.
Id. Howe attempts to distinguish Miller by arguing that in this case, which involved credit card debt rather than the mortgage debt involved in Miller, it was impossible to determine the exact amount of interest owed as of the time of the letter because "the exact interest rates chargeable to the debtor over time may not be known to the current holder of the debt because rates change over time." Howe Affidavit at ¶ 12. Unfortunately for Howe, that "impossible" calculation is precisely what the FDCPA requires of debt collectors, and for good reason: the debt collector legally may collect (or attempt to collect) only the amount actually owed by the debtor, and if the creditor's records are insufficient to calculate that amount, the debt collector proceeds at his peril. Howe also argues that the amount of interest owed is impossible to know because
the debtor may have filed for relief under the bankruptcy code, failed to notify my client or me, and then suffered dismissal of the bankruptcy because of non-payment of fees or failure to file schedules. This is a common event in my practice. Nevertheless, for the pendency of the bankruptcy, the accrual of interest may have been stayed.
Howe Affidavit at ¶ 11. Not surprisingly, Howe cites to no case in support of this rather creative argument, and the court finds it to be without merit. The FDCPA required Howe to use the information available to him, and to the creditor who hired him, to calculate the amount of interest owed by Bernstein as of the date of the letter and inform Bernstein of that amount.
The Miller court set forth a "safe harbor" formula that debt collectors may use in situations in which the amount of interest owed by the debtor varies from day to day. Miller, 214 F.3d at 876.
Bernstein next argues that the same statement in Howe's letter — that the amount owed by Bernstein was "$4,401.28 plus interest and attorneys fees" — violated the FDCPA's prohibition against falsely representing "the character, amount, or legal status" of the debt found in 15 U.S.C. § 1692e(2)(A). The Seventh Circuit addressed this issue in Veach v. Sheeks, 316 F.3d 690 (7th Cir. 2003). In Veach, the plaintiff argued that the failure to specify the amount of attorney's fees owed violated § 1692g of the FDCPA. The court rejected that argument, but held instead that the inclusion of attorney's fees as part of the description of the debt violated § 1692e because the***
In his motion to strike and in his reply in support of his motion for summary judgment, Howe argues that Bernstein raised this claim too late: "Plaintiff's Complaint is based solely on claims that Howe violated § 1692g of the FDCPA. Nowhere is the possibility of a § 1692e violation raised. The deadline for amending the pleadings has long passed, as has the statutory period for filing a complaint under the FDCPA." Howe's Reply Brief at 7. This argument is without merit. "[C]omplaints need not articulate legal theories," Johnson v. Revenue Management Corp., 169 F.3d 1057, 1060 (7th Cir. 1999); thus, it was not necessary for Bernstein to cite § 1692e in her complaint in order to satisfy the statute of limitations. If Howe wished to pin Bernstein down as to her legal theories prior to filing for summary judgment, he could have utilized a contention interrogatory to do so. See Shah v. Inter-Continental Hotel Chicago Operating Corp., 314 F.3d 278, 282 (7th Cir. 2002) (notice pleading may leave the defendant "unsure what statute, state or federal, or common law principle the conduct alleged in the complaint might violate, but he could smoke out the plaintiff's theory of the case by serving a contention interrogatory on him"). Absent such an interrogatory, the plaintiff's response to the defendant's motion for summary judgment is precisely the time when the plaintiff is required to specify the legal theories upon which she relies. See Transamerica Financial Servs., Inc. v. Skyes, 171 F.3d 553, 555 (7th Cir. 1999) ("It is a well-settled rule that a party opposing a summary judgment motion must inform the trial judge of the reasons, legal or factual, why summary judgment should not be entered.").
"amount of the debt" provision is designed to inform the debtor . . . of what the obligation is, not what the final, worst-case scenario could be. . . . Since Veach cannot be held liable for treble damages, court costs, or attorney's fees until there has been a judgment by a court, they cannot be part of the "remaining principal balance'" of a claimed debt.
Veach, 316 F.3d at 693 (emphasis in original).
Howe attempts to distinguish this case from Veach on the ground that the contract between Bernstein and First Card, her credit card company, provided that Bernstein would pay "costs, including `reasonable attorney's fees,' incurred by First Card in legal proceedings to collect the debt," Howe's Reply at 8, while the potential attorney's fees in Veach were statutory. This distinction is of no help to Howe. Whether contractual or statutory, the fact remains that no attorney's fees actually were owed by Bernstein at the time Howe sent his letter. At most, there was the potential for an award of attorney's fees in the future, in the event that First Card incurred attorney's fees as a result of pursuing legal proceedings against Bernstein. Veach instructs that a debt collector violates the FDCPA by representing this potential for fees as a part of the debt owed.
Finally, Howe argues that he is entitled to assert the bona fide error defense for any violations of the FDCPA because those violations resulted from unintentional mistakes in interpreting the law. 15 U.S.C. § 1692k(c) provides:
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of 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.
Courts are divided on the issue of whether the FDCPA's bona fide error defense applies to mistakes of law. "The majority view is that the defense is only available for clerical and factual errors." Nielsen v. Dickerson, 307 F.3d 624, 640 (7th Cir. 2002). The Seventh Circuit has not yet taken a position on the issue; at most, it has assumed that the bona fide error defense was applicable to mistakes of law in cases in which that assumption was not outcome determinative because the bona fide error defense was not available to the defendant for another reason. See, e.g., Nielson, 307 F.3d at 641. The Seventh Circuit similarly has assumed without deciding that the "not intentional" language of § 1692k(c) refers to intent to violate the FDCPA, not intent to take the action that was taken. See id.
This court makes the same assumptions. To the extent that the bona fide error defense is applicable to mistakes of law, however, the mistakes must not only be unintentional, they must also be reasonable. Id. (citing Hulshizer v. Global Credit Servs., Inc., 728 F.2d 1037, 1038 (8th Cir. 1984) (per curiam) (finding no basis to invoke the bona fide error defense where "the language of the statute was unambiguous and the creditor's disregard of that language was undisputed") and Janet Flaccus, Fair Debt Collection Practices Act: Lawyers and the Bona Fide Error Defense, 2001 ARK. L. NOTES 95 (2001) (arguing that the bona fide error defense should be available when the law is unsettled, but not when it is reasonably clear)). The court finds Howe's interpretation of the applicable law in the instant case to be unreasonable. The unequivocal requirement that a debt collection letter specify the amount of interest owed by the debtor as of the date of the letter was set forth by the Seventh Circuit in Miller, 214 F.3d 872, a case which was decided eight months prior to the date of Howe's letter and which Howe expressly avers he was aware of because of a seminar he attended as part of his efforts to keep abreast of current FDCPA law. Further, while Veach was not decided by the Seventh Circuit until after the date of the letter, it nonetheless was unreasonable of Howe to believe that it was permissible under the FDCPA to inform a debtor that the amount of the debt owed included "attorney's fees" which had not yet been incurred as of the time of the letter, and would not be incurred unless or until "legal proceedings" were instituted against Bernstein. Accordingly, even assuming that the bona fide error defense is applicable to mistakes of law, it is not applicable in this case. Bernstein is entitled to summary judgment as to Howe's liability for violating 15 U.S.C. § 1692g by failing to specify the amount of interest owed by Bernstein as of the date of the letter and for violating § 1692e for including attorney's fees as part of the debt owed by Bernstein. Therefore, Bernstein's motion is GRANTED as to these two claims.
Howe's affidavit is a bit confusing on this point. Howe states that he attends the seminars in question "[e]very April or May, depending upon hotel availability and that year's calendar." Howe Affidavit at ¶ 5. He further avers that following one of the seminars which occurred after the Miller decision, he reviewed his form demand letter and determined that it complied with the requirements of the Miller decision. Howe Affidavit at ¶ 7-8. To the extent that Howe is suggesting that this occurred before he sent the letter to Bernstein, this is impossible; the Miller decision was issued on June 5, 2000, the letter was sent on February 5, 2001, and the first seminar at which the Miller decision could have been dicussed would have occurred in "April or May" 2001.
Conclusion
For the reasons set forth above, Bernstein's motion for summary judgment is DENIED and Howe's motion for summary judgment is GRANTED as to Bernstein's claim based upon 15 U.S.C. § 1692g(a)(4). Bernstein's motion for summary judgment as to liability is GRANTED and Howe's motion for summary judgment is DENIED as to Bernstein's claims based upon 15 U.S.C. § 1692g(a)(1) and 15 U.S.C. § 1692e(2)(A). This cause is set for a telephonic conference at 1:30 p.m. on April 16, 2003. The parties shall attend by counsel, and shall call the court at 317-229-3660 for this conference, the purpose of which is to explore settlement and set deadlines for further proceedings.