Opinion
IP98-1319-C-B/S.
September 28, 2001
ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This matter comes before the Court on cross motions for summary judgment. Plaintiff Hill filed suit, on behalf of himself and others similarly situated, under the Fair Debt Collection Practices Act ("FDCPA") against Defendants Priority Financial Services, Inc. ("PFS") and Brian Jennings. Plaintiff alleges that Mr. Jennings's simultaneous debt collection activities on behalf of PFS and service as a deputy prosecutor violated Indiana law and that this and other practices violated various provisions of the FDCPA. Defendant counters that this Court may not properly exercise jurisdiction over this dispute, that Mr. Jennings's actions on behalf of PFS did not violate state or federal law, and that any FDCPA violation must be excused in light of the bona fide error defense. For the reasons set forth below, we GRANT IN PART and DENY IN PART Defendant's Motion for Summary Judgment and we GRANT IN PART and DENY IN PART Plaintiff's Motion for Summary Judgment.
Plaintiff serves as the representative for the class certified by order of the Court on December 22, 2000. The class includes "[a]ll individuals who were sent a Notice of Claim by Brian Jennings on behalf of Defendant, Priority Financial Services[,] to collect a consumer debt between September 24, 1997[,] and September 23, 1998."
Defendant Jennings was dismissed from this lawsuit with prejudice by order of the Court on November 18, 1999. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION.
Factual Background
At all times relevant to this dispute, Defendant PFS was a licensed collection agency within the state of Indiana. (D's Statement of Mat. Facts ¶ 1.) Prior to August 19, 1998, Charles Reddish, D.D.S. retained PFS's services to collect a debt of $200 owed to him by Plaintiff Johnathon Hill. (Pl's Statement of Addt'l Facts ¶ 22.) Mr. Hill received correspondence from PFS regarding payment of the debt. (Id. ¶ 23.) After receiving this correspondence, Mr. Hill set up arrangements with PFS by which he would satisfy the debt to Mr. Reddish. (Id. ¶ 24.) One of the checks Mr. Hill wrote pursuant to this payment plan was returned dishonored. (Id. ¶ 25.)
Brian Jennings represented PFS in debt collection lawsuits before the Marion County Small Claims Court. (Id. ¶¶ 2-3.) In this capacity, Jennings filed Notices of Claims and served as attorney of record in debt collection lawsuits, including a suit against Mr. Hill. (Id. ¶¶ 4, 13.) In the Notice of Claim applicable to Mr. Hill, PFS requested attorney's fees of $300, collection costs totaling 50% of the debt, and treble damages of $100. (Id. ¶ 29; Answer ¶ 1.) The Notice also sought "statutory ancillary damages," citing repealed Indiana Code § 34-1-32-1 without stating that such damages were only available to prevailing parties. (Id.) The Small Claims Court entered a default judgment against Mr. Hill in that matter, which he did not appeal or seek to have set aside. (Id. ¶¶ 5-6.)
While acting on behalf of PFS, Mr. Jennings also served as a deputy Marion County prosecutor. (Compl. ¶ 19.) Chief counsel to the Marion County prosecutor, Mark Massa, knew of Jennings's representation of PFS and expressed the opinion that it was not unlawful. (D's Statement of Mat. Facts ¶ 14.) The Indiana Secretary of State did not file any complaint with the Marion County Prosecutor regarding Mr. Jennings's representation of PFS, despite his employment as a law enforcement officer. (Id. ¶ 13.)
Standard of Review
Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine issue of material fact exists if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the particular issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The mere existence of a factual dispute will not bar summary judgment; the facts in dispute must be outcome-determinative. Id. In considering a motion for summary judgment, a court must review the record and draw all reasonable inferences in the light most favorable to the non-moving party. Id. at 255; Del Raso v. United States, 244 F.3d 567, 570 (7th Cir. 2001). "[A] party will be successful in opposing summary judgment only when they present definite, competent evidence to rebut the motion." Smith v. Severn, 129 F.3d 419, 427 (7th Cir. 1997). Summary judgment is required only if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish his or her case. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed 265 (1986).
Analysis
First, we will address Defendant's arguments that this Court lacks subject matter jurisdiction over the present dispute. Then, we will turn to Defendant's alleged violation of Indiana and federal law. Finally, we will examine whether Defendant may properly assert the bona fide error defense to Plaintiff's claims under the FDCPA.
1. Subject matter jurisdiction
Defendant argues that the Rooker-Feldman doctrine deprives this Court of subject matter jurisdiction over this matter. This is not the first time we have entertained this argument. In the September 29, 2000 Entry Resolving Pending Motions, we addressed and rejected Defendant's arguments on this point. Now, Defendant urges the Court to reverse its prior ruling and adopt the reasoning of Judge Hamilton in Clark v. Pollard, 2000 WL 1902183 (S.D.Ind. Dec. 28, 2000). To clarify our prior decision, we must address this issue once again raised by Defendant.
The Rooker-Feldman doctrine "precludes lower courts from exercising jurisdiction over claims that would require them to review a final judgment of a state court." Manley v. City of Chicago, 236 F.3d 392, 396 (7th Cir. 2001). The key element in this analysis is "whether the federal plaintiff seeks to set aside a state court judgment or whether he is, in fact, presenting an independent claim." Kamilewicz v. Bank of Boston Corp., 92 F.3d 506, 510 (7th Cir. 1996); see also 4901 Corp. v. Town of Cicero, 220 F.3d 522, 527 (7th Cir. 2000). To properly characterize a plaintiff's claim, we must examine "whether the injury alleged . . . resulted from the state court judgment itself or is distinct from that judgment." Brooks v. Auto Sales Servs., Inc., 2001 WL 686950 (S.D.Ind. June 15, 2001), quoting Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999).
Defendant relies on Clark v. Pollard for the proposition that the Rooker-Feldman doctrine should deprive this Court of subject matter jurisdiction. In that case, Yvonne Clark sued Rebecca Pollard, claiming that Pollard, a debt collector, engaged in the unauthorized practice of law in violation of the FDCPA. 2000 WL 1902183, at *1. The court acknowledged the thorny problems posed by the interaction of the Rooker-Feldman doctrine and the FDCPA, but found it unnecessary to fully analyze the issue. Id. at *2. Instead, the court noted that because "[Clark] could prevail on her FDCPA claim only by showing that the actions taken in state court and with the approval of the state court violated state law," and because that state court judgment remained unchallenged, Clark had failed to state a claim upon which relief could be granted. Id. at *4.
Ms. Clark previously attempted to serve as class representative in the present case.
Ms. Pollard is the president of Priority Financial Services, also the named Defendant in this case.
While the decision in Clark does not support Defendant's arguments opposing subject matter jurisdiction, it does help to illustrate the two types of injuries central to Rooker-Feldman analysis. In Clark, the plaintiff challenged the defendant's actions in the context of litigation, specifically, Pollard's authority to sign the judgment of the Small Claims Court and the motion for proceedings supplemental. Those allegedly harmful activities occurred exclusively in the course of the litigation of the debt. Here, however, the actions on which Plaintiff bases the claim for relief occurred independent of any litigation. In fact, these activities occurred as soon as Mr. Jennings took any action to collect debts on behalf of PFS.
The present case bears greater similarity to Brooks v. Auto Sales Services, Inc., 2001 WL 686950 (S.D.Ind. June 15, 2001). There, plaintiff Holly Brooks alleged that defendant Richard Malad, as an agent of Auto Sales Services, violated numerous FDCPA provisions by filing a misleading, unfair Notice of Claim against her in Marion County Small Claims Court. Id. at *1. Brooks argued that Malad's actions amounted to attorney deceit, a violation of state law. Id. The defendants moved to dismiss Brooks's claims, arguing in part that the Rooker-Feldman doctrine deprived the court of subject matter jurisdiction. Id. The court found that the Rooker-Feldman doctrine did not apply to Brooks's FDCPA claim, however, because "[r]egardless of the outcome in the Marion County Small Claims Court, Brooks'[s] cause of action under the FDCPA arose prior to the entry of judgment." Id. at *4.
Here, Defendant maintains that Plaintiff is essentially challenging the state court's award of attorney fees, based on Jennings's representation of PFS in those actions. This characterization simultaneously oversimplifies and misunderstands the nature of Plaintiff's FDCPA claim, however. Plaintiff claims that all of Mr. Jennings's actions on behalf of PFS, not simply the request for attorney fees, violated the FDCPA. The terms of the class certification bear no connection to the judgment of any court. As stated in our previous Order, the Rooker-Feldman doctrine does not apply to Plaintiffs's claims in this matter. Accordingly, Defendant's Motion for Summary Judgment on this issue is DENIED.
Defendant briefly suggests that the doctrines of res judicata and collateral estoppel bind this Court to adopt the outcome of Clark, later retreating that "[i]t simply seems unnecessary to cover that issue on summary judgment." (D's Brief in Support of Motion for Summ. J. at 5.) Because these principles cast doubt on our proper exercise of jurisdiction over this dispute, we must address them. Res judicata, or issue preclusion, prohibits relitigation of the same claim previously decided in a dispute between the same parties or those in privity. Indiana Ins. Co. v. American Community Servs., Inc., 718 N.E.2d 1147, 1155 (Ind.Ct.App. 1999). For res judicata to bar later litigation,
1) the former judgment must have been rendered by a court of competent jurisdiction; 2) the former judgment must have been rendered on the merits; 3) the matter now in issue was, or could have been, determined in the prior action; and 4) the controversy adjudicated in the former action must have been between the parties to the present suit or their privies.
Small v. Centocor, Inc., 731 N.E.2d 22, 26 (Ind.Ct.App. 2000). Collateral estoppel, or issue preclusion, "bars subsequent relitigation of a fact or issue where that fact or issue was necessarily adjudicated in a prior cause of action and the same fact or issue is presented in a subsequent suit." Id. at 28; Slutsky v. Crews, 713 N.E.2d 288, 291 (Ind.Ct.App. 1999).
For very fundamental reasons, neither of these doctrines applies to the present case. First, res judicata requires that a prior decision be rendered "on the merits." In Clark v. Pollard, however, the court dismissed the cause of action without prejudice. 2000 WL 1902183, at *4. Without a judgment on the merits or its equivalent, res judicata did not attach and so cannot impact later proceedings. Second, collateral estoppel requires that an issue be "necessarily adjudicated" in the prior dispute. The court in Clark explicitly stated that it was not basing its decision on the application of the Rooker-Feldman doctrine, but instead on Ms. Clark's failure to state a claim for relief under the FDCPA. Id. at *2. For these reasons, neither res judicata nor collateral estoppel binds this Court to adopt the outcome of Clark v. Pollard. Accordingly, we proceed to evaluate the substantive claims presented by the cross motions for summary judgment.
2. State law violation
Defendant argues that, despite Jennings's status as a deputy prosecutor, his representation of PFS in debt collection matters did not violate the terms of Indiana Code 25-11-1-11. Principally, Defendant argues that Indiana's prohibition against law enforcement officers "engaging in business of soliciting and collecting claims" applies only to those "operating collection agencies." Plaintiff counters that this interpretation contradicts the well accepted principles of statutory construction.
Our analysis of this issue must begin with the language of the Indiana statute. Wherever possible and not in conflict with the purpose of the statute, we must give effect to the plain and ordinary meaning of the statutory language. Mundell v. Beverly Enterprises-Indiana, Inc., 778 F. Supp. 459, 462 (S.D.Ind. 1991), citing Marion County Sheriff's Merit Bd. v. Peoples Broadcasting Corp., 547 N.E.2d 235, 237 (Ind. 1989). Where terms are left undefined by the statute, we must apply their plain and ordinary meanings, as evidenced by their dictionary definitions. Bass v. Stolper, Koritzinsky, Brewster Neider, S.C., 111 F.3d 1322, 1325 (7th Cir. 1997), citing Perrin v. United States, 444 U.S. 37, 42 (1979).
We "presume that the legislature intended its language to be applied in a logical manner consistent with the statute's underlying policies and goals." State v. Maillard, 695 N.E.2d 637, 640 (Ind.Ct.App. 1998). We also must presume that all statutory language is included intentionally, unless no other meaning is possible. Sidell v. Review Bd. of Indiana Employment Sec. Div., 428 N.E.2d 281, 284 (Ind.Ct.App. 1981). The statute at issue reads, in relevant part:
It shall be unlawful for any judge of any court of this state and any full-time law enforcement officer or full-time deputy of such officer to operate a collection agency or to engage in the business of soliciting or collecting claims. It shall be unlawful for any special or part-time deputy appointed by any law enforcement officer to use the credentials and the authority of his office for the purpose of enforcing the collection of any claim.
Defendant operates under the assumption that the term "collection agency" is coterminous with those "engaged in the business of solicitation and collection of debts" such that the statutory exemption for attorneys from the definition of a "collection agency" must necessarily exempt them from being "engaged in the business" of debt collection. This interpretation simply strains the plain and ordinary meaning of the statute. While all collection agencies are necessarily engaged in the business of debt collection, not all individuals who engage in debt collection activities necessarily belong to a collection agency. The use of the conjunction "or" signals that the legislature intended the prohibition to cover two distinct groups. Defendant's suggested interpretation would require us to find that the second phrase exists merely as a subset of the first, rendering the second phrase meaningless. Such verbal gymnastics do not comport with logic, grammar, or the rules of statutory construction.
Defendant further contends that, as legal representative for PFS, Jennings was not "engaged in the business of soliciting or collecting debts." Plaintiff does not identify, and the Court has not found, any Indiana decisions interpreting whether an attorney acting as representative in a debt collection matter "engages in the business of soliciting or collecting debts" as mentioned in the statute. Typically, in cases where the state Supreme court has not spoken on an issue of state law, we may refer to the decisions of state appellate courts for guidance. Home Valu, Inc. v. Pep Boys, Inc., 213 F.3d 960, 963 (7th Cir. 2000). However, with no statement from an intermediate state court to guide our interpretation and because the resolution of this issue factors into our determination of federal law violations, we must attempt to divine the meaning before applying the statute to the facts before us.
The central issue is: what activities comprise the "business of soliciting or collecting debts"? As Defendant's arguments illustrate, debt collection and legal practice are difficult to distinguish, largely because the collection of debts requires the interpretation of numerous regulations and often involves the initiation of legal action. Business is defined as "a particular occupation or employment habitually engaged in for livelihood or gain." Black's Law Dictionary (7th ed. 1999). To "solicit" means "to make petition to; to approach with a request or plea." Webster's Third New Int'l Dictionary (1993). To "collect" means "to claim and receive in payment or fair recompense." Id. The mere fact that Mr. Jennings's responsibilities with PFS included typical legal duties does not mean that none of his actions advanced the "business of debt collection." In fact, Mr. Jennings's activities extended well into the business of debt collection. It is undisputed that Jennings filed Notices regarding debts owed to PFS. These Notices were simply another form of request that the debtors pay the debts owed. Jennings earned income through these activities on behalf of PFS. Therefore, under the plain, ordinary meaning of the statute, Mr. Jennings was "engaged in the business" of debt collection.
Even absent any statutory declaration, there is some indication that the Indiana legislature meant the prohibition to apply to attorneys. Defendant correctly points out that the statute expressly exempts attorneys from the licensing requirements attending debt collection agencies. Ind. Code § 25-11-1-2. However, no such exemption is provided for attorneys from the requirements surrounding the "business of debt collection." As the time-honored saying goes, inclusio unius est exclusio alterus ("to include one thing implies the exclusion of the other"). Absent any exemption for attorneys parallel to the "collection agency" licensing provision, we must assume that the Indiana legislature meant to include attorneys within the group "engaged in the business" of debt collection.
For the aforementioned reasons, we find that Indiana law prohibited Jennings, a law enforcement officer, from engaging in the business of debt collection as an agent of PFS. Therefore, Defendant's Motion for Summary Judgment on this issue is DENIED.
3. Federal law violations
Plaintiff contends that Defendant has violated multiple provisions of the FDCPA. We will analyze claims arising under each of the relevant FDCPA provisions. First, Plaintiff alleges that PFS's Notice of Claim contains assorted false or misleading statements, in violation of 1692(e). Specifically, Plaintiff alleges that "[t]he Notice of . . . is deceptive and misleading because of the following: . . . (b) Mr. Jennings and PFS requested treble damages for Mr. Hill's alleged NSF check; . . . [and] (d) Mr. Jennings and PFS requested attorney's fees." (Second Amended Compl. ¶ 31.) In response, Defendant admits "the allegations of rhetorical paragraphs . . . 31(b), and 31(d)." (Answer ¶ 1.) Despite Defendant's argument in the Motion for Summary Judgment, the pleadings indicate that there is no dispute on this point. It is well settled that a party is bound by the assertions in its pleadings. Help at Home, Inc. v. Medical Capital, L.L.C., 260 F.3d 748, 753 (7th Cir. 2001). Because Defendant has admitted the legal basis of the FDCPA violation and raises no genuine issue of material fact, Defendant's Motion for Summary Judgment is DENIED and Plaintiff's Motion for Summary Judgment is GRANTED as to the 1692(e) claim.
Next, Plaintiff alleges that Defendant used unfair or unconscionable means in its debt-collection efforts by attempting to collect an amount not expressly authorized by the agreement creating it or permitted by law. 15 U.S.C. § 1692(f)(1). The essence of this claim is that Jennings unlawfully represented PFS in debt-collection matters, and so the fee amounts claimed by PFS were not permitted by law. Plaintiff also contends that PFS's claims for collection costs totaling 50% of the original balance were not permitted by law and amount to unfair or unconscionable tactics. Similar claims were addressed in Spears v. Brennan, 745 N.E.2d 862 (Ind.Ct.App. 2001). There, the plaintiff contested a one-third contingent fee added to the amount of debt reduced to judgment in small claims court. Id. at 872. The court explained that a challenge to court-awarded fees must be addressed to the applicable trial court, not fashioned as an FDCPA claim, because such a challenge represents a collateral attack on the state court judgment. Id. Here, just as in Spears, Plaintiff should have addressed his complaints regarding the propriety of fees requested in the Notice of Claim to the small claims court, either prior to judgment or in some form of appeal. Plaintiff did neither. He can not now seek relief from this award under the FDCPA. Accordingly, Plaintiff's Motion for Summary Judgment is DENIED and Defendant's Motion for Summary Judgment is GRANTED as to these claims.
Plaintiff also alleges that Defendant's improper debt collection practices constitute "conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt" 15 U.S.C. § 1692(d). The statute enumerates several examples of abusive conduct and includes a general admonition not to "limit the general application" of the section. Id. The listed abuses deal primarily with the nature of contact between debt collectors and consumers. Plaintiff has simply provided no factual basis from which to discern the existence of such a claim in this case. None of the filings with the Court meaningfully address the "abusive" or "harassing" nature of communication between PFS and Plaintiff. Indeed, Plaintiff's Motion for Summary Judgment does not even demonstrate how Plaintiff can maintain a claim, let alone be entitled to judgment as a matter of law, under 15 U.S.C. § 1692(d). Accordingly, Plaintiff's Motion for Summary Judgment on this claim is DENIED.
Finally, Defendant argues that the FDCPA was designed to eliminate actual abuses of consumers, and that, absent evidence of actual harm to consumers, there can be no FDCPA violation. This argument misses the mark, however. "The FDCPA does not require proof of actual damages as a precursor to the recovery of statutory damages." Keele v. Wexler, 149 F.3d 589, 593 (7th Cir. 1998); see also Bartlett v. Heibl, 128 F.3d 497, 499 (7th Cir. 1997). Therefore, Plaintiff may be entitled to damages under the FDCPA regardless of actual harm.
4. Bona fide error defense
Notwithstanding any FDCPA violation, Defendant contends that it may rely on the bona fide error defense provided by statute. The relevant provision states, "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." 15 U.S.C. § 1692(k)(c). However, this defense does not shield those who simply misunderstand the obligations imposed by the FDCPA. Bawa v. Bowman, Heintz, Boscia Vician, 2001 WL 618966, at *4 (S.D.Ind. May 30, 2001).
Defendant invokes the bona fide error defense in response to Plaintiff's claims regarding Jennings's activities. Defendant argues at great length that neither the Marion County Prosecutor nor the Indiana Secretary of State took any action to discontinue Jennings's dual employment as debt collector and law enforcement officer. Defendant mistakenly infers that the Secretary of State tacitly approved of Jennings's employment simply because no action had yet been filed. Decisions to initiate litigation "generally rest entirely in [a prosecutor's] discretion." Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978); U.S. v. Cyprian, 756 F. Supp. 388, 391 (N.D.Ind. 1991). Therefore, without an actual statement by the Secretary of State, we can infer nothing from this silence. Relying solely on a mistake of law and ignoring the other alleged FDCPA violations included in the Complaint, Defendant fails to offer any evidence on either of the necessary prongs of the defense. The statute clearly states that the debt collector bears the burden of establishing this defense by a preponderance of the evidence. Absent some showing of Defendant's intention and the steps taken to ensure compliance with the law, the good faith defense provides no shelter for Defendant in this case. Therefore, Defendant's Motion for Summary Judgment is DENIED on this issue.
Conclusion
Defendants and Plaintiffs filed cross motions for summary judgment. For the reasons stated above, we found that 1) the Rooker-Feldman doctrine does not deprive this Court of subject matter jurisdiction over Plaintiffs' FDCPA claims; 2) Jennings's simultaneous employment as a deputy prosecutor and on behalf of PFS violated Indiana law; 3) PFS violated certain provisions of the FDCPA; and 4) Defendant is not entitled to invoke the bona fide error defense provided by 15 U.S.C. § 1692(k)(c). Accordingly, Defendants' Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, and Plaintiffs' Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART.