Opinion
Cause No. IP 00-1793-C H/K
January 4, 2002
ENTRY ON MOTION FOR JUDGMENT AS A MATTER OF LAW
Plaintiff Gary Veach sued defendant Charles Sheeks for alleged violations of the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., and for related alleged wrongs under state law. The case was tried to a jury on December 10, 2001. At the close of the plaintiff's case, the court granted defendant's motion for judgment as a matter of law on several claims. The court stated its reasons orally on the record. A more detailed written statement of the reasons may also be useful to other courts, attorneys, and parties.
Facts
Applying the standards applicable to motions for judgment as a matter of law under Fed.R.Civ.P. 50, the court must view all the evidence in the light reasonably most favorable to plaintiff, giving him the benefit of conflicts in the evidence and reasonable inferences from the evidence. See Reeves v. Sanderson Plumbing Products Inc., 530 U.S. 133, 150-51 (2000).
Plaintiff Veach delivered to a company called CreditNet a check for $350 in an effort to prevent repossession of his girlfriend's son's car. After it turned out that the car had been surrendered or repossessed in any event, Veach stopped payment on the check. CreditNet then sent Veach a written notice stating that the check had been dishonored and demanding that he make full payment or face a lawsuit for "all appropriate legal remedies," which would include damages up to three times the amount of the check, plus interest, attorney fees and court costs. Veach did not believe he had any obligation to CreditNet. He made no payment in response to the notice letter.
CreditNet then hired attorney Charles Sheeks to file suit against Veach. Sheeks filed an action against Veach in the Marion County Small Claims Court. Pursuant to the rules of the state courts, Sheeks prepared a "Notice of Claim," which serves as the complaint and summons in the Small Claims Court. The Notice of Claim stated that Veach was "indebted to the Plaintiff in the sum of $1,050.00 as treble damages for a bad check in the sum of $350.00, plus reasonably [sic] attorney fees as permitted by law." Under Indiana law, a person who commits the crime of check deception may be sued for damages of three times the face amount of the check, plus a reasonable attorney fee and court costs. Ind. Code § 34-24-3-1.
When Sheeks filed the action in Small Claims Court, he had had no prior communications with Veach. Sheeks attached to the Notice of Claim a written validation notice under the FDCPA, which requires a debt collector to send a written notice to the debtor within five days after the "initial communication with a consumer in connection with the collection of any debt." 15 U.S.C. § 1692g(a). Sheeks wrote in the notice that the amount of the debt was a "principal balance" of $1,050, plus "reasonable attorney fees as permitted by law, and costs if allowed by the Court," with no amounts specified for fees or costs.
Veach and Sheeks both appeared for a trial, after which the judge of the Small Claims Court awarded CreditNet damages of $1,050, an attorney fee of $350, and court costs in an amount not specified on the judgment. The judgment was later vacated by Veach's appeal to the Marion Circuit Court. CreditNet eventually dismissed the state court action without any payment from Veach.
Discussion
Plaintiff Veach presented four claims at trial, three of which were resolved in favor of defendant Sheeks on a motion for judgment as a matter of law: (1) plaintiff's claim for a violation of 15 U.S.C. § 1692g(a)(1) because the Notice of Claim and validation notice did not state the "amount of the debt;" (2) plaintiff's claim for violation of 15 U.S.C. § 1692e(2)(A) because the Notice of Claim and validation notice misrepresented "the character, amount, or legal status" of the debt; and (3) plaintiff's claim that defendant committed criminal deception under Ind. Code § 35-43-5-3(a)(2) by asserting in the Notice of Claim and validation notice a right to treble damages.
Veach's fourth claim was that Sheeks had violated the FDCPA's venue provision, 15 U.S.C. § 1692i, by filing suit in Marion County rather than Boone County, where Veach resides and where he signed the check in question. That claim was submitted to the jury. The jury found that Sheeks had violated § 1692i but that he was entitled to the bona fide error defense under § 1692k(c).
I. The "Amount of the Debt"
Plaintiff contends first that the FDCPA validation notice violated 15 U.S.C. § 1692g(a)(1) because it did not state "the amount of the debt." He relies on the Seventh Circuit's decision in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols Clark, L.L.C., 214 F.3d 872, 875 (7th Cir. 2000), in which the Seventh Circuit held that a notice violated § 1692g(a)(1). The notice in Miller stated only the unpaid principal balance in dollars and cents, and noted that the amount did not include unpaid interest, late charges, escrow advances or other charges.
Regarding those charges, the notice merely invited the debtor to call a toll-free number to learn the exact amount of payment that would satisfy the creditor.
The debt collector in Miller argued that it would have been impossible to state one definitive "amount" of the debt because the amount would change daily. The Seventh Circuit rejected the argument: "What [defendants] 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." Miller, 214 F.3d at 875-76. The court then drafted a "safe harbor" formula for dunning letters to solve the problem of debt amounts that change daily. Id. at 876.
The problem in this case is different from that in Miller. The problem here was not the daily accrual of interest or other charges that could be calculated easily. The problem arose here because of the inherent uncertainty about the amount of attorney fees that might be awarded in the lawsuit. The defendant-attorney alleged in the lawsuit on behalf of his client a right to as much as three times the face amount of the check, plus a reasonable attorney fee. The determination of the reasonable fee would be left, under state law, to the court. The fact that the defendant-attorney was seeking three times the face value of the check plus a reasonable attorney fee is stated clearly on the Notice of Claim to which the FDCPA validation notice was attached. The Notice of Claim complied fully with the state court's requirements for such documents and gave Veach fair notice of the relief being sought against him.
Under the FDCPA, should the defendant-attorney have specified a fee amount or not? If he had specified an amount, he would have risked at least an accusation that he was misleading or confusing Veach by implying that the court had determined the amount to be reasonable (or complete). And at the time he filed suit for CreditNet, the defendant-attorney could not do better than guess what amount would ultimately turn out to be reasonable. The reasonable amount could depend on the course of the lawsuit (which turned out to be longer and more expensive here than most small claims cases).
In fact, Veach's own attorney has filed at least one other FDCPA case in this district alleging that an attorney violated the FDCPA by specifying the amount of the attorney fee he was seeking. In Brooks v. Auto Sales Service, Inc., 2001 WL 686950 (S.D.Ind. June 15, 2001), the defendant-attorney filed suit and requested an attorney fee of one-third the actual damages. The amount of the fee requested was set forth in the Notice of Claim. In the Brooks case, the same attorney who represents Veach in this case alleged that the defendant-attorney's specification of the amount of the fee in the Notice of Claim violated the FDCPA by falsely representing "any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt," 15 U.S.C. § 1692e(2)(B), and by using "unfair or unconscionable means to collect or attempt to collect any debt" to collect "any amount (including any interest, fee, charge, or expense incidental to the principal obligation)" that was not "expressly authorized by the agreement creating the debt or permitted by law," 15 U.S.C. § 1692f(1). 2001 WL 686950, at *6. The agreements upon which suit had been filed against Brooks had limited the attorney's fees recoverable to "reasonable" fees, just as the statute upon which Sheeks filed suit against Veach authorizes only a "reasonable" fee. Judge McKinney found that Brooks' allegations stated a claim for violation of the FDCPA. Id.
In other words, when these two cases are put side by side, it appears that plaintiff Veach's counsel contends that an attorney violates two provisions of the FDCPA if he does specify the amount of the fee requested, as in Brooks, but violates another provision of the FDCPA if he fails to specify the amount of the fee requested, as in this case. That apparent Catch-22 is a strong indication that Veach's proposed interpretation of the FDCPA is wrong.
In Brooks, Veach's counsel focused his attack on the attorney's use of one-third of the debt as the standard for a fee award when the debtor had never agreed to such a contingent fee. See Plaintiff's Response to Defendants' Motion to Dismiss at 10-14, Brooks v. Auto Sales Service, Inc., (S.D.Ind. Jan. 12, 2001) (No. IP 00-1497-C). Instead, Veach's counsel argued, a "reasonable" fee must take into consideration the time and effort required to collect the debt. Id. at 12. Under that percentage method of figuring a fee, it is at least possible to calculate a specific amount for the fee. If the percentage fee is not permissible, though, and if a "reasonable" fee requires consideration of the time and effort put into the individual case, then it would not be possible to state in the complaint the amount that will ultimately be sought, let alone awarded by the court. Moreover, because the debtor never agreed that any particular hourly rate would be reasonable, for example, there would still be risks under the FDCPA in specifying a rate that had been agreed between the attorney and the creditor.
The Supreme Court's decision in Heintz v. Jenkins, 514 U.S. 291 (1995), provides important guidance for problems like this in applying the requirements of the FDCPA to litigation activities. In Heintz, the Supreme Court held that litigation activities of attorneys were not entirely exempt from application of the FDCPA. The defendant-attorney in that case had argued that applying the FDCPA's requirements to litigation activities would create conflicts and anomalous results, primarily because when the FDCPA was first enacted, it did exempt litigation activities, and it had not been amended to accommodate or to clarify its application to litigation activities. Id. at 295.
Writing for the unanimous Court, Justice Breyer explained that the anomalies identified by the defendant-attorney could be resolved by interpreting the specific provisions of the FDCPA in ways that would avoid the anomalies. Heintz, 514 U.S. at 296-97. The Court found that such flexible reading of the FDCPA, including the recognition of implicit but narrow exceptions to its requirements, was a better interpretation of the Act than the creation of a blanket exception for all litigation activity. Id. at 297.
This approach should apply to the requirement in § 1692g(a)(1) that the validation notice state "the amount of the debt." Where the validation notice properly accompanies or follows an otherwise proper state court complaint or its equivalent, a clear and accurate statement of the relief being sought in court should be sufficient to comply with the "amount" requirement of § 1692g(a)(1).
The fact that the communications in this case involved litigation also distinguishes this case from Judge McKinney's decision in Bawa v. Bowman, Heintz, Boscia Vician, P.C., 2001 WL 618966, at *3-4 (S.D.Ind. May 30, 2001), and Judge Pallmeyer's decision in Wilkerson v. Bowman, 200 F.R.D. 605, 607-08 (N.D.Ill. 2001). In both cases the courts held that dunning letters violated the FDCPA for failure to state an amount, but in both cases the debt collectors' communications were not complaints filed in state court litigation.
Plaintiff Veach argued at trial that this issue presents a false dilemma, that attorney-defendant Sheeks was not required to send the validation notice with the Notice of Claim filed with the state court. He could have waited five days and still complied with § 1692g. Thus, Veach argued, the solution to Sheeks' dilemma was to send a later validation notice under the FDCPA that followed the safe harbor form of Miller, 214 F.3d at 876. But suppose Sheeks had sent such a notice that specified separate and then-current amounts for actual damages, exemplary damages, attorney fee, and costs. In that case, the debtor (whom courts must treat as an "unsophisticated consumer," see Gammon v. GC Services, 27 F.3d 1254, 1257 (7th Cir. 1994)) would receive no more than five days apart two different statements of the creditor's claim that would appear to seek different amounts. Surely the potential for confusion is not less under that approach than under the approach taken by the defendant-attorney in this case.
At trial in this case, for example, Veach argued that the demand for damages of $1,050 (three times the face amount of the check) violated the FDCPA by falsely implying that the Small Claims Court had decided to award full treble damages. In this court's view, however, as discussed below it is not a violation of the FDCPA to specify in a state court complaint the relief being requested, at least so long as there is a reasonable basis in law for the request. Cf. Gearing v. Check Brokerage Corp., 233 F.3d 469, 471-72 (7th Cir. 2000) (collection agency violated FDCPA by alleging in state court action that it was subrogated to original creditor's rights when state law barred such subrogation under the circumstances).
Because defendant's Notice of Claim complied with state court rules, because the attached FDCPA validation notice was consistent with the Notice of Claim, and because the amount was specified to the greatest extent possible without taking the risk of falsely implying that the state court had made determinations about specific amounts, the court granted judgment as a matter of law for defendant on the claimed violation of § 1692g(a)(1).
II. The "Character, Amount, or Legal Status of the Debt"
Plaintiff Veach contends next that the FDCPA notice and the Notice of Claim violated § 1692e(2)(A) by falsely representing "the character, amount, or legal status" of the debt. Plaintiff Veach focuses on the fact that the Notice of Claim requested damages of $1,050 and that the FDCPA validation notice said the "principal balance" of the debt was $1,050. The face amount of the dishonored check was only $350.
The court granted judgment as a matter of law on this claim because the FDCPA notice letter was consistent with the proper Notice of Claim filed in the state court, which specified what the creditor was claiming. A "debt" under the FDCPA is an "obligation or alleged obligation." 15 U.S.C. § 1692a(5). The Notice of Claim plainly stated that the damages sought were three times the face value of the check in question.
Under Indiana law, the defendant-attorney was entitled to request such treble damages on behalf of CreditNet. Indiana law provides:
The fact that a person issued or delivered a check, a draft, or an order, payment of which was refused by the drawee, constitutes prima facie evidence that the person knew that it would not be paid or honored.
Ind. Code § 35-43-5-5(c) (crime of check deception). Proof of check deception also requires proof that the drawer was sent a written notice of the dishonor and a demand for payment within ten days, and that the drawer then failed to pay in response to the notice. Ind. Code § 35-43-5-5(e). Such notice of nonpayment is not a defense to check deception, but rather is an element of offense. Commercial Medical Accounts Services, Inc. v. Mackintosh, 662 N.E.2d 659, 660 n. 2 (Ind.App. 1996). Proof of such notice is also required in a civil action for treble damages under Ind. Code § 34-24-3-1. Commercial Medical Accounts Services, 662 N.E.2d at 660-61 (citing prior codification of civil remedy statute).
Such notice had been sent to Veach, and Veach had ignored it. Accordingly, defendant-attorney Sheeks had all the evidence he needed to prove check deception and to invoke the civil remedy. This factual and legal foundation for the claim distinguishes this case from Gearing v. Check Brokerage Corp., 233 F.3d 469, 472 (7th Cir. 2000), in which the court affirmed a finding of a violation of § 1692e(2) where a debt collector falsely claimed in state court that it had subrogation rights. See also Strange v. Wexler, 796 F. Supp. 1117, 1119 (N.D. Ill. 1992) (attorney violated 15 U.S.C. § 1692e(2)(B) by asserting claim for attorney fee in state court complaint when fee award was not authorized by state law).
Also, defendant-attorney Sheeks was not required to wait any longer or to provide any further notices regarding the alleged debt (without treble damages) before filing suit on behalf of his client. See Johnson v. Revenue Management Corp., 169 F.3d 1057, 1059 (7th Cir. 1999) ("the creditor is entitled to file suit whenever it chooses").
Plaintiff is correct that the face value of the check was only $350, but that fact does not render the Notice of Claim or the FDCPA validation notice deceptive. The defendant-attorney was entitled to assert on behalf of CreditNet a claim for treble damages. The two documents together stated that claim clearly, and did so consistently with state court pleading rules. A "debt" for purposes of the FDCPA is "any obligation or alleged obligation." 15 U.S.C. § 1692a(5). The defendant-attorney was asserting an alleged obligation to pay the maximum amount the state court could award in the case he was filing on behalf of his client. That assertion gave Veach fair notice of the risks he faced in the state court action. The court is confident that, if the Notice of Claim had not told Veach that CreditNet was seeking the full treble damages, and if CreditNet and its attorney had then asked for and been awarded treble damages in the Small Claims Court, Veach would have complained of a different FDCPA violation, that he had been misled about the amount that CreditNet was seeking.
Applying the flexibility called for under Heintz v. Jenkins when the FDCPA is applied to litigation activities, the Notice of Claim and validation notice did not misrepresent the character, amount, or legal status of the debt. Defendant was therefore entitled to judgment as a matter of law on this claimed violation.
III. State Law Claim for Deception
Plaintiff Veach also claimed that defendant-attorney Sheeks had, by falsely claiming that the principal amount was $1050, made a false written statement for the purpose of obtaining money or property. Plaintiff claimed that this act therefore amounted to a crime under Indiana law. See Ind. Code § 35-43-5-3(a)(2) (knowingly or intentionally making a false or misleading written statement with intent to obtain property). Plaintiff then claimed that this alleged crime entitled him to treble damages under the state statute for civil remedies for certain crimes, Ind. Code § 34-24-3-1, which is the same statute CreditNet relied upon to seek treble damages for the dishonored check.
The court granted judgment as a matter of law on this creative claim, which would essentially criminalize (and authorize treble damages for) many plaintiffs' and plaintiffs' attorneys' violations of Rule 11 of the Federal Rules of Civil Procedure and the parallel Indiana Trial Rule 11. As noted above, the combination of the dishonored check and Veach's failure to comply with the notice established a prima facie case of check deception under Indiana law. With that foundation, and in the absence of any evidence that Sheeks was aware of any other information that would certainly defeat the claim he was asserting, his assertion of the claim in state court was not false and could not have involved any knowing or intentional false statement.
Plaintiff Veach's theory would appear to reach even the reasonable and good faith assertion of unsuccessful claims. Under that sweeping theory, it would appear that defendant-attorney Sheeks might have had a viable counterclaim in this action against plaintiff Veach and/or his attorney. That is, Sheeks might have alleged (though he did not) that Veach and/or his attorney made an intentionally false statement by asserting that Sheeks had committed the crime of deception by filing the small claims action, since Sheeks and his client had a prima facie case already in hand. The Indiana courts have not, to this court's knowledge, indicated any willingness to accept such a sweeping theory under Ind. Code § 35-43-5-3(a)(2). This court doubts the state courts would accept the theory and thus criminalize, without evidence of fraudulent intent, the filing of an unsuccessful claim in a court.