Guerrero v. RJM ACQUISITIONS LLC

Citations: 499 F.3d 926; 2007 U.S. App. LEXIS 20072; 2007 WL 2389825Docket: 05-15121

Court: Court of Appeals for the Ninth Circuit; August 23, 2007; Federal Appellate Court

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Kenneth Jon Guerrero sued RJM Acquisitions, LLC for violations of the Fair Debt Collection Practices Act (FDCPA) in the U.S. District Court for Hawaii. The district court denied RJM's motion to dismiss Guerrero's amended complaint and ruled in Guerrero's favor on cross-summary judgment motions, determining RJM had violated the FDCPA, which entitled Guerrero to damages and attorneys' fees exceeding $45,000. RJM appealed, arguing that Guerrero's amended complaint was barred by the statute of limitations and that the district court misinterpreted the FDCPA regarding several issues: sending two different collection letters for one debt, continuing collection efforts after being notified of a dispute without verifying the debt, and misrepresenting itself as not being a debt collection agency. RJM contended that Guerrero's lawsuit was brought in bad faith and sought attorneys' fees for this reason. Additionally, RJM and amici curiae argued that communications violating the FDCPA directed at a consumer do not violate the Act when directed at the consumer's attorney. The court agreed with this argument, holding that the FDCPA distinguishes between a consumer and their legal counsel, concluding that communications to an attorney do not violate the Act. The appellate court reversed and remanded the district court's decisions.

RJM and amici contest the district court's assertion that RJM must verify a debt even if it ceases collection efforts. The court's decision is disagreed with, as it is held that under the Act, a debt collector must stop collection upon receiving notice of a dispute from the consumer until verification is provided. In May 2002, RJM sent two collection letters to Guerrero, informing him of a debt purchased from Shell Oil Corp., each indicating a balance of $1,291.86 but differing slightly in account identifiers. Both letters contained mandatory language required by the Act regarding debt dispute procedures and concluded with a statement indicating an attempt to collect a debt. 

Between May 20 and June 10, Guerrero contacted his lawyer, Mr. Paer, regarding RJM's actions. On June 10, Paer sent a letter to RJM, claiming violations of the Act and Hawaii state laws, and offered to settle Guerrero's claims for $3,000, threatening to escalate the matter to federal court if unresolved. Paer’s letter asserted that RJM's collection letters did not comply with the Fair Debt Collection Practices Act, formally disputed the alleged debt, and requested verification of the debt to be sent to his office. This letter was a strategic move aimed at either settling the debt for less than owed or initiating a lawsuit against RJM, seeking damages and attorney's fees for the claimed violations.

RJM sent a letter to the debtor at two provided addresses to collect a small debt, which did not violate the Act, contrary to attorney Paer's claims. After receiving a demand letter from Paer for an amount exceeding the original debt, RJM halted all collection activities. In compliance with the Act, RJM informed Paer on June 14, 2002, that it had acquired the Shell Oil account from Citibank, including Guerrero's social security number and the date of last payment. RJM enclosed a letter from Citibank confirming the sale of the account to RJM, indicating that communication should be directed to them.

RJM's June 14 letter noted it was verifying the account, referencing the Shell Oil account number and its own file number, and asserted it had violated no laws, although it incorrectly claimed not to be a collection agency subject to the Act. RJM clarified that its only communication with Guerrero was prior to Paer's intervention and reiterated the debt balance, inviting further discussion. RJM included the required disclosure statement in its letters, indicating compliance with the Act, even though the interpretation of "this" in the disclosure could be broader than just the letter itself.

No further communications occurred between RJM and Guerrero or between RJM and Paer after this exchange. In January 2003, Guerrero filed a complaint alleging violations of the Act and Hawaii consumer protection law, leading to a protracted legal dispute as RJM sought judgment on the pleadings and Guerrero moved for summary judgment.

In January 2004, the district court vacated a scheduled hearing for motions, opting to decide them without a hearing. By early February, the court denied Guerrero's summary judgment motion and granted RJM's motion for judgment on the pleadings, allowing Guerrero to file an amended complaint. Guerrero subsequently filed a first amended complaint that reiterated the original allegations but included additional facts and specific provisions of the Act. In March 2004, RJM moved to dismiss the amended complaint, claiming the new claims did not relate back to the original complaint, thus invoking the Act's one-year statute of limitations. Guerrero later filed another summary judgment motion, followed by RJM's cross motion. The extensive briefing from both parties led to Judge Gillmor commenting on the disproportionate legal efforts relative to the case's issues. In July 2004, the court denied RJM's motion to dismiss and issued a mixed ruling on the summary judgment motions. By December, judgment awarded Guerrero $2,545 in damages and reasonable attorneys' fees. Guerrero's subsequent motion for attorneys' fees faced opposition from RJM and was referred to a magistrate judge, resulting in a June 2005 order that granted Guerrero $45,237.21 in fees. The legal standards for reviewing amended pleadings, motions to dismiss, and attorneys' fees determinations were noted, emphasizing the de novo review for claims related to the Act. The district court found that Guerrero's claims stemmed from the same underlying transaction as the original complaint, countering RJM's argument that they did not. RJM cited SEC v. Seaboard Corp. to argue that the relation back doctrine hinges on whether the opposing party had notice of the new claims.

RJM contends that the amended complaint introduced new claims regarding a June 14 letter, which were not previously mentioned in the original complaint, thereby providing no notice of those claims. RJM's reference to the Seaboard Corp. case is deemed irrelevant, as that case involved the addition of a new cause of action, unlike Guerrero's situation where both the original and amended complaints pertained to similar violations of the Act and Hawaii consumer protection law. The amended complaint offered more specific details about the June 14 letter but remained rooted in the same underlying conduct of RJM's debt collection efforts against Guerrero. The court's decision to allow the amendment was consistent with the principle of Rule 15(a), which favors granting leave to amend when justice requires, and there was no indication that this decision caused any injustice to RJM.

The district court ruled that RJM violated the Act by sending two confusing letters in an attempt to collect a single debt, interpreting this as a breach of provisions 1692d, 1692e, and 1692f, which prohibit abusive practices, false representations, and unfair methods. The Ninth Circuit's threshold for violation is whether the least sophisticated debtor would likely be misled by the communication. The court found that the letters could confuse a debtor into believing there were two separate accounts due to the lack of clarification in the correspondence. RJM argues that the least sophisticated debtor standard applies more broadly than RJM suggests and that the two letters did not violate the Act, as they clearly communicated the debt was for one account. Both letters were sent to addresses provided by Guerrero, contained identical account identifiers, and reflected the same balance owed to the same original creditor, Shell Oil Corp., which RJM argues would not mislead a reasonable debtor.

Guerrero's argument that the letters could mislead a debtor into thinking RJM was collecting on two accounts is rejected, as evidence shows RJM was pursuing only one account, indicated by identical account details. Guerrero's acknowledgment of the delinquent account in a letter from Citibank further supports this finding. Consequently, the court concludes that RJM did not violate 15 U.S.C. § 1692g(a) as interpreted under the 'least sophisticated debtor' standard, leading to a reversal of the district court's decision.

Regarding 15 U.S.C. § 1692g(b), which mandates that a debt collector must cease collection upon receiving a written dispute from a consumer until verification is provided, the court disagrees with the district court's finding that RJM's communication to Guerrero's attorney constituted a prohibited collection effort under both § 1692g(b) and § 1692e, which forbids deceptive practices. The court clarifies that communications directed solely to an attorney are not actionable under the Act, establishing that a consumer and their attorney are distinct entities for these purposes. 

The statute allows debt collectors to contact an attorney when a consumer is represented, but not the consumer directly without consent. The list of individuals defined as 'consumer' in the Act does not include attorneys, indicating a legislative intent to treat lawyers differently from other relatives and fiduciaries of the debtor. This distinction suggests that Congress recognized attorneys as intermediaries capable of withstanding overreaching collection practices and aimed to protect vulnerable individuals from harassment and deception. The absence of attorneys from the definition of 'consumer' underscores this legislative view.

Under the Fair Debt Collection Practices Act (FDCPA), specifically 15 U.S.C. § 1692c(a)(2), a debt collector must direct communications to a debtor's attorney if the collector knows how to contact the attorney, rather than to the debtor. This rule exists to protect unsophisticated consumers from being misled, as attorneys are better equipped to handle such communications. In the case of RJM's June 14, 2002 letter sent to Attorney Paer, the legality hinges on whether this communication constitutes "collection of the debt" under § 1692g(b). This section mandates that if a consumer disputes a debt in writing within a specified period, the collector must cease collection efforts until verification is provided. RJM is alleged to have violated this provision by sending the letter before verifying the debt.

The court finds that collection efforts must be aimed directly at the consumer to be prohibited under § 1692g(b). Hence, communications solely to an attorney without a threat to contact the debtor are not actionable under the FDCPA. Additionally, numerous federal decisions support this interpretation, asserting that communications to a debtor's attorney do not violate the Act, reinforcing the notion that the attorney serves as an intermediary to protect the consumer. The consensus among multiple cases, including Kropelnicki v. Siegel, indicates that misleading statements made to an attorney regarding debt collection are not actionable under the FDCPA, as the attorney is expected to safeguard the consumer from any inappropriate actions by the collector.

In Zaborac, a consumer contested a debt and sought verification, prompting the debt collector to temporarily halt collection efforts. The consumer's attorney subsequently informed the collector of a potential bankruptcy filing, leading to settlement negotiations. The consumer later sued, claiming these negotiations violated 15 U.S.C. § 1692g(b), which mandates that a debt collector cease payment demands until verification is provided. The district court ruled that communications with a debtor's attorney do not violate § 1692g(b), noting that the statute specifically addresses interactions between the consumer and the debt collector, not their attorneys. The court emphasized that applying the statute's restrictions to attorney communications would undermine the Act's intended purposes. 

The dissent referenced two types of cases: those that do not analyze the issue at hand, and those that rely on assumptions from cases that do not address the issue. For instance, in Heintz v. Jenkins, the Supreme Court considered whether a lawyer collecting debts qualifies as a "debt collector" under the Act, but did not address the implications of communications with a debtor's counsel. Consequently, the Zaborac court argued that implicit assumptions from Heintz are not binding precedents. The dissent also cited Sayyed, which ruled that communications with a debtor's attorney fall under the Act. However, the Zaborac court criticized Sayyed for failing to acknowledge the prevailing authority on the matter and for relying on the implicit assumptions from Heintz, arguing that the Act delineates different roles and treatments for attorneys and their clients.

Section 1692c(a)(2) of the Fair Debt Collection Practices Act (FDCPA) indicates that Congress viewed attorneys as intermediaries between debtors and debt collectors, suggesting that debtors' attorneys do not require the same protections as the debtors themselves. The FDCPA aims to safeguard vulnerable debtors from abusive and deceptive collection practices. The legislative history highlights that the Act's protections are designed for all consumers, regardless of their sophistication. The Act’s strictures are not intended to cover communications directed solely at a debtor's attorney, particularly during settlement negotiations. Congress focused on preventing disruptive and deceptive tactics that could intimidate unsophisticated individuals, but these concerns diminish when an attorney represents the debtor, as attorneys possess the sophistication needed to handle such communications.

The dissent’s argument that debtors are only protected when they do not have an attorney misinterprets the ruling. The court clarifies that while the Act protects debtors, its provisions do not apply to communications exclusively between debt collectors and attorneys representing the debtors. Extending the Act's prohibitions to these communications would undermine its goals, particularly regarding the encouragement of prompt and amicable debt resolution. The case exemplifies how misapplying the Act could complicate debt collection efforts, as demonstrated by Attorney Paer's actions, which transformed a manageable debt situation into a complex federal dispute, leading to substantial legal fees exceeding the debt amount.

Adopting Guerrero's proposed rule would hinder settlement negotiations by penalizing individuals who respond to a debtor's attorney's threat of litigation over alleged violations. This outcome seems contrary to Congressional intent and would deter debt collectors from engaging in settlement discussions. The court found that RJM did not violate the Fair Debt Collection Practices Act (FDCPA) by continuing collection efforts, as it had ceased such efforts upon receiving a dispute notification from Guerrero's attorney. The FDCPA mandates that if a consumer disputes a debt in writing within thirty days, the collector must halt collection until the debt is verified. The statute does not impose an obligation on collectors to verify a disputed debt if they stop all collection activities. This interpretation aligns with the Seventh Circuit's ruling in *Jang v. A.M. Miller Assocs.*, which clarified that collectors can either provide validation and continue collection or cease all activities. In this case, RJM appropriately stopped collection efforts after receiving notice of the dispute. Furthermore, under the FDCPA, collectors may recover attorney's fees and costs if a consumer's action is found to be in bad faith or for harassment. The court expressed skepticism regarding Guerrero's counsel's claims about the confusing nature of the letters sent, although acknowledged that there is minimal merit to the argument that they could mislead a less sophisticated debtor.

RJM failed to provide evidence beyond a general claim that Guerrero's lawsuit was frivolous, which did not support a finding of bad faith or harassment in Guerrero's claims. The district court's determination that Guerrero acted in good faith was not clearly erroneous, and thus, RJM's request for attorneys' fees was appropriately denied. However, as the district court's conclusion that RJM violated the Fair Debt Collection Practices Act (FDCPA) was overturned, the award of attorneys' fees to Guerrero was deemed erroneous. The FDCPA was designed to protect debtors from abusive practices but should not hinder debt collectors from working with debtor attorneys to resolve claims without excessive liability. RJM did not violate the FDCPA in its communications with Guerrero or his attorney. Consequently, the decision is reversed and remanded to vacate the attorneys' fees awarded to Guerrero and to rule in favor of RJM on both counts. A concurring and dissenting opinion noted disagreement with the majority regarding the interpretation of the FDCPA, asserting that the communication between RJM and Guerrero's attorney was indeed an attempt to collect a debt and should be scrutinized under the Act. The factual background includes RJM's attempt to collect a debt of $1,291.86 from Guerrero, subsequent legal correspondence, and RJM's assertion that it was not subject to the FDCPA.

The document states that the current balance owed is $1,291.86 and requests contact for discussion, providing a postage-paid return envelope. It emphasizes that the communication is an attempt to collect a debt, with any information gathered being used for that purpose. The document references the Fair Debt Collection Practices Act (FDCPA), enacted by Congress in 1978 to combat debt collection abuse, indicating that it is a remedial statute designed to protect debtors from such practices. 

A disagreement is raised regarding the majority's interpretation that debtors represented by attorneys do not benefit from FDCPA protections against misleading communications from debt collectors, provided these communications are directed at the attorney. This position is argued to be inconsistent with the FDCPA's purpose and statutory text. The FDCPA includes provisions that regulate debt collector conduct, specifying that communications should primarily occur with the debtor's attorney in certain circumstances and prohibiting harassment, false representations, and unfair collection methods. 

The discussion highlights specific sections of the FDCPA, particularly 15 U.S.C. 1692e, which prohibits misleading representations, and 15 U.S.C. 1692g(b), which mandates halting debt collection during verification of a disputed debt. The majority's rejection of claims under these sections is critiqued, with the assertion that protections against misleading representations should extend to communications with a debtor's attorney. The conclusion emphasizes that the FDCPA's prohibitions against threats and inconvenient legal actions remain applicable, regardless of the debtor's representation by an attorney.

The majority incorrectly concludes that indirect collection efforts directed at a debtor's attorney are exempt from the prohibition against collection activities pending debt verification as outlined in 15 U.S.C. § 1692g(b). The argument centers on the applicability of 15 U.S.C. § 1692e, which prohibits debt collectors from using false, deceptive, or misleading representations in debt collection. 

Firstly, the language of the Fair Debt Collection Practices Act (FDCPA) explicitly indicates that § 1692e encompasses communications between debt collectors and debtors' attorneys. The definition of a "debt collector" includes anyone who attempts to collect debts, directly or indirectly. This broad interpretation means that any communication regarding a debt, whether directed at the debtor or a third party, including an attorney, falls under the purview of § 1692e.

Secondly, judicial precedent supports this interpretation. The U.S. Supreme Court and various appellate courts have upheld that § 1692e applies to communications with attorneys representing debtors. For instance, in *Heintz v. Jenkins*, the Court recognized that communications sent to a debtor's attorney in the context of debt collection are indeed governed by § 1692e.

Finally, the FDCPA's provisions indicate that if a debtor is represented by an attorney, all communications should be directed to that attorney, reaffirming that attorneys are included in the scope of individuals to whom debt collectors cannot make false or misleading representations. Therefore, the majority's position that communications solely aimed at a debtor's attorney are not actionable contradicts the statute's clear intent and established judicial interpretations.

Jenkins filed a lawsuit against the bank's attorney and law firm, claiming that a letter sent to her attorney misrepresented the debt amount, violating 15 U.S.C. § 1692e(2)(A) of the Fair Debt Collection Practices Act (FDCPA). The defendants moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(6), arguing that the FDCPA does not apply to lawyers collecting debts through litigation. The Supreme Court unanimously upheld the Seventh Circuit's decision to reverse the district court's dismissal, asserting that the FDCPA does apply to lawyers involved in debt collection. The Court indicated that a false representation sent to a debtor's attorney constitutes a violation of § 1692e(2)(A).

In **Dikeman v. National Educators, Inc.**, the Tenth Circuit addressed a similar issue, where a debt collector's communication with an attorney for debtors was deemed not false or misleading because the attorney, being sophisticated, would not misunderstand it. Conversely, in **Sayyed v. Wolpoff, Abramson**, the Fourth Circuit rejected the argument that § 1692e does not apply to communications with a debtor's attorney. The court explained that the FDCPA explicitly includes such communications, interpreting "communication" broadly to encompass indirect communications to the debtor.

The majority opinion dismissed these precedents, relying on a dictum from **Kropelnicki v. Siegel**, which suggested that attorneys would protect consumers from fraudulent behavior by debt collectors. However, this statement did not serve as a definitive ruling. Additionally, the only district court case discussed, **Zaborac v. Phillips, Cohen Assocs. Ltd.**, did not address the applicability of § 1692e to communications directed at a debtor's attorney.

Settlement negotiations between attorneys while a debt verification is pending do not constitute "collection of the debt" under 15 U.S.C. § 1692g(b), as ruled by the district court in Zaborac. However, this ruling does not clarify whether debt collectors can make "false, deceptive, or misleading representations" to a debtor's attorney under § 1692e. If collectors are allowed to send false information to attorneys, debtors could face significant risks, including incurring unnecessary attorney fees due to the need for verification. Therefore, if § 1692e prohibits such communications, debtors could recover damages and attorney fees. The majority interpretation suggests that debtor protection under § 1692e ends once an attorney is involved, placing the burden of false communications on the debtor rather than the collector, which contradicts the FDCPA's intent. 

Regarding RJM's June 14 letter to Guerrero's attorney, it falls under the purview of § 1692e. The standard for determining whether representations are false, deceptive, or misleading should differ depending on whether the communication is made to the attorney or the consumer, following the Tenth Circuit's decision in Dikeman. In that case, the court ruled that a debt collector's failure to disclose its intent to collect a debt when communicating with an attorney did not violate § 1692e(11), as the requirement to disclose applies differently based on the recipient of the communication.

The debt verification process adequately informs an attorney representing a debtor that a debt collector is attempting to collect a debt, and that any information obtained will be used for that purpose. The court emphasizes that a lawyer's expertise allows them to easily discern the legal implications of communications with a debt collector. It is proposed that the statute should be interpreted practically, assessing whether a communication is misleading from the recipient's perspective. Although RJM's claim of not being a collection agency is technically true, it does not exempt them from being classified as a debt collector under the Fair Debt Collection Practices Act (FDCPA). The statement made by RJM to Guerrero's attorney was deemed not "false, deceptive, or misleading," as the attorney could quickly evaluate and reject the legal assertion. While the communication fell under the FDCPA, it did not constitute a violation. Furthermore, 15 U.S.C. § 1692g mandates that within five days of initial contact regarding a debt, a collector must provide written notice to the consumer about their rights to dispute the debt. If a consumer disputes the debt in writing within 30 days, the collector must cease collection efforts until verification is obtained.

Collection activities may proceed during a 30-day verification period unless a consumer disputes the debt in writing. Guerrero requested debt verification through his attorney's letter on June 10, which RJM acknowledged in a June 14 response, stating they were in the process of verification and indicated a balance of $1,291.86. RJM's letter included a statement that it was an attempt to collect a debt. Guerrero argued that RJM failed to verify the debt before sending the June 14 letter, which he claimed constituted prohibited collection activity. While the district court sided with Guerrero, the majority opinion reversed this decision, asserting that settlement attempts do not constitute "collection of [a] debt" under the statute if the debtor is represented by an attorney. However, it does consider such attempts as "collection" if the debtor is unrepresented. The majority emphasizes policy considerations favoring settlement negotiations between attorneys but distinguishes between direct and indirect collection activities. They claimed that RJM ceased direct collection from Guerrero upon receiving the verification request. Despite acknowledging that RJM's letter was a form of collection activity, the majority allowed it because it was addressed to the attorney rather than directly to the debtor, a distinction not supported by the statutory language of 15 U.S.C. § 1692g(b), which prohibits all forms of debt collection until verification is completed.

The text asserts that the statute does not allow sending collection letters to a debtor's attorney while prohibiting direct communication with unrepresented debtors. The author emphasizes adherence to the statute's clear language, despite potential policy arguments for alternative interpretations. The Supreme Court's ruling in Heintz highlighted that Congress consciously rejected language that would protect debt collectors' lawyers from Fair Debt Collection Practices Act (FDCPA) liability when contacting third parties for settlements. The court noted that Congress did not differentiate between "legal" and "debt collection" activities within the FDCPA. 

The statute mandates that all collection efforts, including settlement negotiations, must cease until a debt is verified, which is a straightforward requirement designed to ensure accurate information is exchanged between parties. This verification process helps prevent wrongful collection actions. The text points out that public interest in settlements does not override FDCPA provisions, particularly Section 1692g(b), which establishes that all debt collection activities must halt pending verification. 

In the specific case discussed, Guerrero properly requested debt verification under Section 1692g(a). RJM's subsequent letter acknowledged this request, indicating that collection activities should have ceased. The letter, while attempting to collect the debt, did not exempt itself from the requirements of the statute, as Section 1692g(b) contains no exceptions for settlement attempts.

The excerpt addresses violations of the Fair Debt Collection Practices Act (FDCPA) by RJM, specifically concerning the improper collection of a disputed debt without verification, as mandated by § 1692g(b). The district court ruled that Guerrero was entitled to statutory damages of $1,000 for these violations, along with $43,428.00 in attorney's fees and $1,809.21 in costs. The court found RJM's communications to Guerrero's attorney did not violate § 1692e, although RJM failed to cease collection efforts as required by § 1692g(b). The author concurs with the majority's opinion regarding the two letters sent to Guerrero, deeming them not misleading despite minor discrepancies in account numbers. However, the author would vacate the district court's awards for statutory damages, attorney's fees, and costs, remanding for reconsideration based on Guerrero's actual degree of success. The author emphasizes that communications directed at a debtor's attorney are actionable under FDCPA provisions. The notes clarify that a debt collector cannot contact a consumer represented by an attorney and reiterate the Act's intent to combat abusive debt collection practices.

In Hill v. Mutual Hospital Service, Inc., the dissent's assertion that Zaborac's reasoning pertains only to § 1692g(b) and is irrelevant to § 1692e is incorrect. The Zaborac case, while originating under § 1692g(b), offers broader insights applicable to the entire Fair Debt Collection Practices Act (FDCPA). The court referenced Kropelnicki, which involved § 1692e, supporting the view that an attorney acts as an intermediary between debt collectors and consumers. In Tromba, claims under § 1692e were dismissed, as communications directed to a debtor's attorney are not actionable under the FDCPA. Heintz's Petition for Certiorari raised a singular issue regarding whether an attorney engaged solely in litigation against a consumer qualifies as a 'debt collector' under the Act. The dissent’s reliance on Dikeman v. National Educators, Inc. is noted, where the Tenth Circuit skipped the question of whether communications to a debtor's attorney are actionable and instead focused on potential misleading communication. The court emphasizes that policy arguments supporting settlement do not override the Act's provisions, highlighting the need to consider the Act's purpose and objectives when the statutory text is ambiguous. The outcome of Count II, alleging violations of HRS § 480-2, is contingent on the findings from Count I, with both parties agreeing on the damages sustained. Guerrero's request for appellate attorneys' fees is denied.