Summary
holding the bona fide error defense was available because the defendant complied with state law
Summary of this case from Gray v. Suttell & Assocs.Opinion
Case No. 1:00-CV-860
September 7, 2001
For Plaintiff(s): Louis R. Lint.
For Defendant(s): Michael A. Figliomeni.
OPINION
Plaintiffs, Dennis R. West and Esther V. West (the "Wests"), have sued Defendant, Check Alert Systems, Inc. ("Check Alert"), alleging that Check Alert violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692-1692o, and the Michigan Collection Practices Act ("Michigan Collection Act"), M.C.L. §§ 339.901-.920, 445.251-.258, when it sent the Wests a notice of returned check. Now before the Court are the parties' cross motions for summary judgment.
Facts
On November 16, 1999, Plaintiff Dennis West wrote a check to Gordon Foods Marketplace in the amount of $104.27. The check was returned for insufficient funds. Gordon Foods Marketplace then turned the check over to Check Alert for collection. On or about December 6, 1999, Check Alert sent the Wests a Notice of Returned Check (the "Notice"). The Notice stated:
CHECK ALERT SYSTEMS, INC. is in possession of a check allegedly signed by you and made out to the above merchant that was NOT HONORED by your bank! Michigan Public Act 313 requires the following notification:
". . . This notice is a formal demand for payment of the full amount of the dishonored check, draft, or order plus a processing fee of $25.00 for a total amount of $129.27. If you pay this total amount within 7 days, excluding weekends and holidays, after the date this notice was mailed, no further civil action will be taken against you. If you do not pay the total amount as requested above, but within 30 days after the date this notice was mailed, you pay the amount of the dishonored check, draft, or order, plus a $35.00 processing fee for a total amount of $139.27, no further civil action will be taken against you. If you fail to pay either amount listed above, I/we/our client will be authorized by State Law to bring a civil action against you to determine your legal responsibility for payment of the check, draft, or order and civil damages and costs allowed by law. If you dispute the dishonoring of this check, draft, or order, you should contact your bank or financial institution immediately."
This is an attempt to collect a debt and all information obtained will be used for that purpose.
If you dispute the validity of the dishonored check amount of any portion thereof, you must notify CHECK ALERT SYSTEMS within 30 days of your receipt of this notice and we will provide verification of same. We will assume this is valid if we have no response within 30 days.
(Notice, Pls.' Br. Supp. Ex. A.)
In response to the Notice, the Wests filed the instant case against Check Alert. To date, the Wests have not paid the amount demanded in the Notice.
Summary Judgment Standard
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). A dispute is genuine if a reasonable jury could return judgment for the non-moving party. Id.
The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)).
Discussion
I. FDCPA Claim (Count I)
The Wests contend that the Notice violated the following sections of the FDCPA:
Check Alert concedes that it is a debt collector under the FDCPA under this Court's ruling in Gradisher v. Check Enforcement Unit, 133 F. Supp.2d 988 (W.D.Mich. 2001).
(a) Notice of debt; contents. Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) Disputed debts. If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
(c) Admission of liability. The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.15 U.S.C. § 1692f(1)
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
The Court will first address the Wests' claim that the Notice violated 15 U.S.C. § 1962f(1) by seeking to collect either a $25 or a $35 processing fee not authorized by law. Pursuant to M.C.L. § 600.2952(1), "a person who makes, draws, utters, or delivers a check . . . upon a bank or other depository . . . that refuses to honor the check . . . for lack of funds or credit to pay . . . is liable for the amount of the dishonored check . . . plus a processing fee. . . ." A payee of a check or an agent of the payee may make a written demand for the amount of the check and the processing fee. M.C.L. § 600.2952(2). The processing fee is $25 if the amount is paid within 7 days and $35 if the amount is paid within 30 days. M.C.L. § 600.2952(3). Here, Check Alert was an agent of Gordon Foods Marketplace for collection of the dishonored check and was authorized by law to collect a processing fee. The Wests fail to cite any basis for holding that the processing fee was not authorized under M.C.L. § 600.2952. Therefore, the Notice did not violate 15 U.S.C. § 1692f(1), and Check Alert is entitled to summary judgment on this claim. See Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir. 2001).
Check Alert raises several arguments with respect to the Wests' claim that the Notice violated 15 U.S.C. § 1692g. The first argument is that the Notice was the initial communication from Check Alert to the Wests. However, this argument misses the point, because the statute plainly states that the information set forth in § 1692g(a) must either be included in the initial communication, i.e., the Notice, or provided within five days after the initial communication. Thus, if the information was not set forth in the Notice, Check Alert was required to furnish it within 5 days.
Check Alert contends that the Notice did not violate § 1692g(a) because the Notice contained the following language:
This is an attempt to collect a debt and all information obtained will be used for that purpose.
If you dispute the validity of the dishonored check amount of any portion thereof, you must notify CHECK ALERT SYSTEMS within 30 days of your receipt of this notice and we will provide verification of same. We will assume this is invalid if we have no response within 30 days.
Check Alert asserts that this language was added to the Notice in order to comply with § 1692g(a)(3), (4), and (5). This language complies with the validation notice requirements. However, a debt collector that includes the required validation notice may still violate the FDCPA if the validation notice is "overshadowed or contradicted by other messages or notices appearing in the collection letter." Withers v. Eveland, 988 F. Supp. 942, 947 (E.D.Va. 1997). See also Miller v. Payco-Gen. Am. Credits, Inc., 943 F.2d 482, 484 (4th Cir. 1991) (stating that "in order to be effective, `the notice must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency'" (quoting Swanson v. S. Oreg. Credit Serv. Inc., 869 F.2d 1222, 1225 (9th Cir. 1998)); Desantis v. Roz-Ber, Inc., 51 F. Supp.2d 244, 249 (E.D.N.Y. 1999) (stating that "the Court must determine whether the contested language in the debt collection letter `overshadowed or contradicted' the mandatory validation notice thereby confusing the least sophisticated debtor"). In Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997), the court stated:
The statute does not say in so many words that the disclosures required by it must be made in a nonconfusing manner. But the courts, our own included, have held, plausibly enough, that it is implicit that the debt collector 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.
Most of the cases put it this way: the implied duty to avoid confusing the unsophisticated consumer can be violated by contradicting or "overshadowing" the required notice. . . .
. . . .
It would be better if the courts just said that the unsophisticated consumer is to be protected against confusion whatever form it takes. A contradiction is just one means of inducing confusion; "overshadowing" is just another; and the most common is a third, the failure to explain an apparent though not actual contradiction. . . .Id. at 500 (citations omitted).
Although neither party raised the issue of whether the Notice was confusing or "overshadowed" the validation notice, the Court concludes that the Notice included language that would have confused the least sophisticated consumer about his right to dispute the debt. The Notice was contradictory or confusing because it notified the Wests that unless they paid the debt within seven days, they would pay an increased processing fee of $35 rather than $25. This language could easily lead the least sophisticated consumer to believe that the right to dispute the debt must be exercised within seven days in order to avoid the increased $35 processing fee or to even overlook the right to dispute the debt. Certainly this language would be confusing to an unsophisticated debtor trying to understand how the right to dispute the debt within thirty days relates to the seven-day period.
It is also arguable that the Notice was confusing because in one sentence it instructs the debtor, "If you dispute the dishonoring of this check . . . you should contact your bank or financial institution immediately," but later states, "If you dispute the validity of the dishonored check amount or any portion thereof, you must notify CHECK ALERT SYSTEMS within 30 days. . . ." A close reading of the two sentences indicates that the first, dealing with "the dishonoring of this check," refers to whether the bank had a valid reason for dishonoring the check. The second sentence refers to whether the debt, or any part of it, is invalid. Thus, although there is an apparent conflict, each of the sentences relates to a different aspect of the check collection process.
The language in the demand letter in Talbott v. GC Servs. Ltd. P'ship, 53 F. Supp.2d 846 (W.D.Va. 1999), was similar to the language in the Notice in this case. The letter in Talbott contained the statutory validation notice but advised the debtor that unless he paid the debt within ten days, he would be assessed a collection fee of $32.53. The letter also stated that payment within ten days would be the only opportunity to avoid the collection charges. The court observed, "this is exactly the kind of language that, while not directly contradictory to or irreconcilable with the validation notice, could easily confuse the least sophisticated consumer and leave him unsure about his right to dispute the debt." Id. at 854.
Check Alert contends that even if the language in the Notice was confusing or overshadowed the validation notice, the violation was unintentional and resulted from a bona fide error. The bona fide error defense is set forth in 15 U.S.C. § 1692k(c), which precludes liability under the FDCPA if the debt collector proves "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." To establish this defense, a defendant must prove that: (1) the violation was not intentional; and (2) the violation occurred "notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."Jenkins v. Heintz, 124 F.3d 824, 834 (7th Cir. 1997). Check Alert contends that it has established this defense because the violation was unintentional and resulted from a bona fide error, even though Check Alert took steps to comply with the FDCPA. Check Alert asserts that until this Court's decision in Gradisher v. Check Enforcement Unit, 133 F. Supp.2d 988 (W.D.Mich. 2001), it was unclear whether firms such as Check Alert were subject to the FDCPA, as some courts had held that collection of a dishonored check was not collection of a debt.
The Court finds that Check Alert has established that the violation was unintentional because the evidence before the Court shows that Check Alert attempted to comply with the FDCPA by including the required validation notice. The question of whether the violation resulted from a bona fide error despite the maintenance of procedures reasonably adapted to avoid such error is less clear. While it is true that prior to this Court's decision in the Gradisher case there was (and remains) some disagreement among the courts about the collection of dishonored checks as being collection of a debt for purposes of the FDCPA, the majority of courts at that time held that such activity is subject to the FDCPA.See Bass v. Stolper, Koritzinsky, Brewster Neider, S.C., 111 F.3d 1322, 1324 n. 4 (7th Cir. 1997) (stating, "We know of only two published decisions specifically holding that a dishonored check does not create a "debt" under the FDCPA"). Furthermore, in Gradisher, this Court noted the existence of a number of cases, including an unreported per curiam decision by the Sixth Circuit, Broadnax v. Greene Credit Service, No. 95-3829, 1997 SL 14777 (6th Cir. Jan. 15, 1997), holding that collection of a dishonored check is collection of a debt under the FDCPA. See Gradisher, 133 F. Supp.2d at 990-91.
In Withers v. Equifax Risk Management Services, 40 F. Supp.2d 978 (N.D.Ill. 1999), the debt collector raised the bona fide error defense under similar circumstances. In that case, the letters sent to the plaintiffs included the FDCPA validation notice, but also contained information for Massachusetts and Colorado residents. The information stated that residents in those states had the right, among other things, to make a written or oral request that attempts to collect the debt at the resident's place of employment cease. The plaintiffs, who were not residents of either state, argued that inclusion of those statements in the letters was misleading because it conveyed the impression that only residents of those states had the right to direct debt collectors to cease certain communications, when in fact those rights are granted to all debtors under the FDCPA. The defendant argued that the bona fide error defense should apply because the inclusion of those notices was an error of law. The court rejected the defendant's argument, and in doing so, noted that prior to the time the defendant sent the letters to the plaintiffs, three district courts held that inclusion of state disclosures could be misleading, with one court concluding that disclosure of the existence of those rights under the FDCPA was not required and the other two courts holding that disclosure of FDCPA rights was required when similar state law rights are included. Withers, 40 F. Supp.2d at 983. The court rejected the defendant's argument that the split of authority justified the defendant's continued use of the Colorado disclosure because all three courts found the inclusion confusing to consumers and nine months prior to the time the defendant sent the offending letters, the defendant agreed as part of a court settlement to discontinue sending letters in the form sent to the plaintiffs in Withers. Id.
The Court concludes that the facts in this case present a different situation than those in Withers. Although there was preexisting authority holding that firms such as Check Alert are debt collectors, there was no unanimity among courts as there was in Withers with regard to the issue of whether the inclusion of the state law notices was misleading. In addition, unlike the defendant in Withers, Check Alert did not agree in a prior case to discontinue using the form at issue in this case. The only thing Check Alert could have arguably known for certain (and that is questionable) is that it was a debt collector. Based upon that possibility, Check Alert took reasonable steps to comply with the FDCPA by including the validation notice in its form Notice. The problem Check Alert faced, as a collector of dishonored checks, was that Michigan law also required a particular form of Notice. See M.C.L. § 600.2952(2) ("A payee or an agent of a payee may make written demand for payment. . . . The text of the written demand shall be as follows" (emphasis added)). Thus, Check Alert essentially found itself at the crossroads between state and federal law. Although the form of the Notice was misleading due to the conflicting words required by the two laws, Check Alert's attempt to comply with both laws was reasonable under the circumstances.
At oral argument, the Wests' counsel represented that cases construing the bona fide error defense have held that the defense does not apply to mistakes of law. Although the Wests' counsel did not provide the Court with any case citations, the Court has found through its own research a number of cases supporting counsel's argument. Several courts have held that the bona fide error defense does not apply to mistakes of law, including reliance on advice of counsel. Picht v. John R. Hawks, Ltd., 236 F.3d 446, 451-52 (8th Cir. 2001); Van Westrienen v. Americontinental Collection Corp., 94 F. Supp.2d 1087, 1100-01 (D.Or. 2000); Spencer v. Henderson-Webb, Inc., 81 F. Supp.2d 582, 591 (D.Md. 1999); Irwin v. Mascott, 112 F. Supp.2d 937, 959 (N.D.Cal. 2000). Some courts have also held that the bona fide error defense is limited to clerical errors.Baker v. G.C. Servs. Corp., 677 F.2d 775, 779 (9th Cir. 1982); Irwin, 112 F. Supp.2d at 959 (N.D.Cal. 2000). Other courts have held that there is nothing in the language of 15 U.S.C. § 1692k(c) which limits its application only to clerical errors or ministerial mistakes. Taylor v. Luper, Sheriff Niedenthal Co., 74 F. Supp.2d 761, 765 (S.D.Ohio 1999);Filsinger v. Upton, Cohen Slamowitz, No. 99-CV-1393, 2000 WL 198223, at *2 (N.D.N.Y. Feb. 18, 2000). In Watkins v. Peterson Enterprises, Inc., 57 F. Supp.2d 1102 (E.D.Wash. 1999), the plaintiff alleged that the defendant, Peterson, violated the FDCPA by obtaining "pay orders" against garnishee defendants instead of obtaining judgments against them. Apparently, the state court directed Peterson to use the pay orders. Peterson argued that it was entitled to rely on the bona fide error defense. Citing controlling Ninth Circuit precedent, Baker v. G.C. Services Corp., 677 F.2d 775 (9th Cir. 1982), the plaintiffs argued that the bona fide error defense was unavailable to Peterson because the defense does not apply to a mistake of law. The district court held that a mistake of law, by itself, was insufficient to raise the bona fide error defense. Yet, the court found that on the facts of the case, Peterson was entitled to rely on the defense:
[T]here was no indication [in Baker that] the debt collector's practices had ever been approved by federal or state officials. Here, by contrast, Peterson has presented unrebutted evidence it used pay orders because it was required to do so by state district courts. This, then, is not a situation in which an unlawful practice occurred solely as a result of a debt collector's mistaken view of the law. To the contrary, the mistake stemmed from an official interpretation of [a Washington statute]. As a result, Baker is not controlling. Peterson's use of pay orders was a bona fide error under the FDCPA.Watkins, 57 F. Supp.2d at 1107-08.
The Court concludes that Check Alert is entitled to assert the bona fide error defense because it did not make a mere mistake of law. In fact, Check Alert complied with Michigan law by including the statutory check collection language in the Notice and with the FDCPA by including the validation notice language in the Notice. There was no mistake because Check Alert did what it was required by law to do. In Watkins, the court held that the bona fide error defense applied because the defendant complied with the requirements of the state court. This case presents an analogous situation because Check Alert followed the requirements of a state statute. A different result might be required if the Notice could be drafted to accommodate the requirements of both laws. However, this Court finds the language required by both statutes to be irreconcilable. Check Alert also seeks summary judgment on the Wests' other FDCPA allegations that Check Alert: (1) had a practice and policy of sending collection letters threatening suit without the intent to actually file suit; and (2) had a practice and policy of sending collection letters misrepresenting the character, amount, or legal status of the debt. The Wests have failed to present any evidence (or even argument) on these claims. Moreover, the language in the notice simply describes the possible result of failing to pay the debt and does not threaten suit. See Smith v. Transworld Sys., Inc., No. C-3-96-166, 1997 WL 1774879, at *2 (S.D.Ohio July 31, 1997). Therefore, Check Alert is also entitled to summary judgment on those claims.
The Wests have not suggested how the Notice could have been drafted so as to preserve Check Alert's state law right to receive the processing fee while allowing debtors 30 days to dispute the validity of the debt.
II. State Law Claim
Check Alert is entitled to summary judgment on the state law claim because the Wests have failed to present any evidence showing a violation of state law.
Conclusion
For the foregoing reasons, the Court will deny the Wests' motion for summary judgment will be denied and Check Alert's motion for summary judgment will be granted.
An Order consistent with this Opinion will be entered.
ORDER
In accordance with the Opinion filed this date,
IT IS HEREBY ORDERED that Plaintiffs' Motion For Summary Judgment (docket no. 16) is DENIED.
IT IS FURTHER ORDERED that Defendant's Motion For Summary Judgment Under Fed.R.Civ.P. 56 (docket no. 15) is GRANTED.
This case is closed.