Court: District Court, E.D. Kentucky; March 21, 2016; Federal District Court
Cross-motions for summary judgment have been filed by Plaintiff Dede Stratton and Defendant Portfolio Recovery Associates, LLC (PRA). PRA seeks summary judgment on several grounds: the Credit Card Agreement is governed by Utah law; Stratton cannot prove that PRA’s assignor waived rights to collect prejudgment interest; certain sections of the Fair Debt Collection Practices Act (FDCPA) are inapplicable; and PRA is protected by the bona fide error defense. In contrast, Stratton argues that the Credit Card Agreement is inadmissible due to hearsay rules, asserting that PRA has not shown entitlement to prejudgment interest prior to its acquisition of the debt. She also contends that PRA did not inherit the contract rights of its predecessor and claims that the predecessor waived any rights to interest on her debt. Stratton disputes PRA’s position regarding FDCPA violations and seeks summary judgment based on the inadmissibility of the Agreement. The court ultimately denies Stratton's motions to strike and for summary judgment while granting PRA's motion for summary judgment. PRA had purchased Stratton’s debt from GE Money Bank in 2010, which had charged off the account in 2008 at $2,630.95, ceasing interest accumulation thereafter. PRA's collection action in 2012 claimed the same amount with interest from the date of charge-off, prompting Stratton’s lawsuit for alleged FDCPA violations regarding interest collection attempts during the period before PRA's debt acquisition.
Stratton alleged that PRA violated the Fair Debt Collection Practices Act (FDCPA) in three ways: first, by charging an unauthorized 8% prejudgment interest rate under 15 U.S.C. 1692f(1); second, by falsely representing the character of her debt under 15 U.S.C. 1692e(2)(A); and third, by treating PRA's state court suit as a "threat" under 15 U.S.C. 1692e(5). After PRA's motion to dismiss the Class Action Complaint, Stratton filed an Amended Complaint to address the issues raised. Initially, the court dismissed her claims, but the Sixth Circuit later reversed this decision, determining that Stratton plausibly alleged violations of the FDCPA. The court noted that PRA conceded that GE had waived its right to collect prejudgment interest at the contractual rate, and emphasized that GE could not restore its statutory right to interest after waiving its contractual right. Consequently, PRA, as GE's assignee, was not entitled to collect any interest. The court acknowledged that discovery might reveal a contractual provision allowing PRA to collect interest, but no such provision was present at that time. During discovery, PRA acquired the Credit Card Agreement between GE and Stratton, which specified an annual percentage rate of 21.99% and stated that Utah law applied where federal law did not, alongside a non-waiver clause. Before filing an Amended Answer, PRA sought summary judgment on all of Stratton’s claims, which led to Stratton filing her own motion for summary judgment and a response opposing PRA's motion. This resulted in subsequent filings and responses from both parties, culminating in the court's decision to first address Stratton’s motion to strike the Credit Card Agreement.
Summary judgment rulings must rely on admissible evidence, excluding hearsay unless it meets an evidentiary exception. Affidavits submitted for summary judgment must be based on personal knowledge, contain admissible evidence, and demonstrate the witness's competence to testify. Business records can be admissible under Rule 803(6) of the Federal Rules of Evidence if they meet four criteria: they must be created during a regular business activity, maintained in the course of that business, generated as part of standard practices, and produced by a knowledgeable person or based on their information. A custodian or qualified witness must affirm that these conditions are satisfied. The custodian does not need to have personally compiled the information, nor does an "other qualified witness" need direct knowledge of the record's preparation, but must be familiar with the record-keeping practices. In Fambrough, the court found two affiants unqualified as they failed to clarify their reliance on another organization's documents. Additionally, it is not necessary for a business to have prepared the records it offers; rather, the proffering entity must show reliance on the document's accuracy and other indicators of trustworthiness. The court has allowed the introduction of business records from an investigated company, provided proper foundational testimony can be established, including from government agents.
The Court recently examined the admissibility of a Credit Card Agreement in relation to arguments presented by Stratton. In **Caudill v. Cavalry SPV I, LLC**, the Court allowed a representative from Cavalry SPV I to introduce a credit card agreement, despite it being created by a bank, under the principle that debt collectors can rely on documents integrated into their records even if they lack personal knowledge of their creation. Stratton raises multiple objections to the Credit Card Agreement’s admissibility, including the alleged lack of a qualified witness from PRA to introduce it as a business record, the claim that documents produced during litigation cannot qualify as business records, doubts regarding the Agreement’s relevance to her account, and a challenge to PRA's assertion of estoppel due to her references to the Agreement during discovery.
The Court found the Credit Card Agreement admissible as a business record under Rule 803(6) of the Federal Rules of Evidence, noting that Tara Privette, a Senior Vice President at PRA, provided a sworn affidavit affirming that PRA regularly relied on such agreements received from GE, despite not personally participating in their creation. Privette’s testimony met the requirements of the business record exception, as she demonstrated PRA’s integration and reliance on the documents. Stratton disputed Privette's ability to confirm that the record was maintained in the regular course of PRA’s business and questioned the trustworthiness of its source.
Stratton also cited **Melendez-Diaz v. Massachusetts** to argue that documents acquired during litigation are inadmissible as business records; however, the Court clarified that this case pertained to documents prepared for trial and did not apply to the Credit Card Agreement in question. Stratton's argument could imply that the Agreement was not kept as part of PRA's regular business activities if it was only acquired for litigation purposes.
Stratton's interpretation of a provision conflicts with the Sixth Circuit's understanding, particularly highlighted in the case of Hathaway, where a federal agent successfully introduced a company record obtained for litigation purposes due to the government's reliance on its accuracy. In contrast, the court in Fambrough emphasized the affiants' lack of familiarity with their company's recordkeeping. However, Privette has demonstrated her knowledge of PRA's recordkeeping procedures. Although PRA did not have the physical Credit Card Agreement upon acquiring Stratton's debt from GE, GE’s records were integrated into PRA's business records upon the account's purchase, and PRA retained the right to request necessary documents from GE. Stratton questions the reliability of the Credit Card Agreement due to a lack of identifying features for her account; however, the burden of proving unreliability lies with her. The court notes that when a company integrates a document rather than creates it, trustworthiness may be inferred from the integrating company's recordkeeping practices. The Credit Card Agreement aligns with Stratton’s account details, such as the identified annual percentage rate and corresponding branch information. Stratton has not shown any evidence of unreliability in the creation or maintenance of the Agreement and had ample opportunity to investigate further. While the admissibility of the Credit Card Agreement as a business record renders PRA's estoppel argument unnecessary, the court observes that Stratton's pleadings and discovery responses do not address this specific Agreement.
Summary judgment is appropriate when there are no genuine disputes about material facts, allowing the movant to be entitled to judgment as a matter of law. A material fact dispute is deemed "genuine" only if a reasonable jury could find for the nonmoving party, leading to a determination of whether the evidence necessitates a jury's consideration or if it overwhelmingly favors one party. In evaluating summary judgment motions, the court must view facts and inferences in favor of the nonmoving party.
In this case, PRA claims that the Credit Card Agreement applies Utah law, which allows for the request of prejudgment interest at the statutory rate, despite GE agreeing to a contractual rate. Stratton counters that GE did not assign the entire account to PRA, thus denying PRA rights under the Agreement, and argues that PRA is estopped from invoking Utah law. PRA also contends that Stratton has not provided evidence of GE waiving its right to collect prejudgment interest at the contractual rate. Stratton, in her response, asserts that GE waived this right by charging off her account. Additionally, there is a dispute regarding the applicability of the FDCPA’s bona fide error defense to PRA’s actions.
Stratton claims that PRA only purchased the "receivables" of her account from GE, implying that PRA did not acquire GE's contractual rights. She references the “Bill of Sale,” which specifies the sale of “receivables” rather than “account,” and a “Forward Flow Receivables Purchase Agreement” that distinguishes between these terms. However, she does not clarify the implications of these definitions or provide evidence that the sale of receivables excludes the assignment of contractual rights.
Stratton references the case Munoz v. Pipestone Financial, LLC to argue that the sale of receivables does not involve the transfer of contractual rights. In Munoz, the court found that a buyer of a receivable could not collect unaccrued interest or attorney fees specified in the original credit card agreement. The reasoning in Munoz is deemed unpersuasive as it relied on a dictionary definition rather than Minnesota law. The current Court aligns with the reasoning in Martin, which noted that credit card agreements apply to successors and assigns. Stratton's Credit Card Agreement similarly allows for the sale, assignment, or transfer of rights or obligations. The Court also analyzed Kentucky Revised Statutes (Ky. Rev. Stat. 355.9-404(1)), stating that rights acquired by an assignee of accounts receivable are subject to the original agreement's terms. This supports the conclusion that GE transferred its contractual rights to PRA when selling Stratton's receivables. Additionally, the Court agrees with the Caudill case, where the plaintiff was estopped from contesting the defendant's ability to invoke the credit card agreement's terms due to having benefited from it. Stratton's claims regarding PRA's alleged violations of the Fair Debt Collection Practices Act (FDCPA) are intertwined with the Agreement, leading to her being estopped from avoiding its terms. Regarding the choice of law, PRA asserts that the Credit Card Agreement's provision dictates that Utah law governs its right to collect prejudgment interest, which is favorable to PRA. PRA further argues that the non-waiver clause shows GE did not relinquish its right to collect interest at the contractual rate. Stratton counters that PRA is estopped from claiming Utah law applies, maintaining that PRA possesses no rights under the Agreement.
Stratton argues that PRA is barred by judicial estoppel from asserting that Utah law applies, as PRA previously claimed entitlement to prejudgment interest under Kentucky law in two motions to dismiss and on appeal. Judicial estoppel prevents a party from adopting a contradictory position if they have previously succeeded with a different stance, particularly if the change prejudices the opposing party. Key factors for establishing estoppel include the inconsistency of the party's positions, their success with the earlier position, and whether the change would unfairly benefit the party asserting the new position or harm the opposing party. The court finds that PRA's prior position under Kentucky law was not successful, and both parties did not litigate the choice-of-law issue before. Furthermore, while Stratton may face some prejudice due to resource expenditure in the previous appeal, there is no evidence of bad faith from PRA. Thus, PRA is not estopped from claiming Utah law applies based on the Credit Card Agreement.
The Credit Card Agreement includes a choice-of-law provision stipulating that the agreement and any related claims are governed by federal law, and if state law applies, by the laws of Utah, disregarding its conflict of law principles. The agreement specifies that it is entered into and managed from Utah, including decisions on credit extension and payment acceptance.
In federal-question cases, federal common law's choice-of-law principles generally apply, but when federal claims involve state contract law, the forum state's principles are utilized. In this instance, Kentucky's choice-of-law principles govern the enforceability of the choice-of-law provision in the Credit Card Agreement. Kentucky adheres to sections 177 and 178 of the Restatement (Second) of Conflict of Laws, allowing for a choice-of-law provision unless: (a) the chosen state lacks substantial connection to the parties or transaction without reasonable justification, or (b) applying the chosen state's law contradicts a fundamental policy of a state with a significantly greater interest in the issue.
The first exception does not apply here, as there is a reasonable basis for the choice of law due to GE’s residency in Utah. Regarding the second exception, Kentucky courts enforce contracts unless there is a clear public policy against the contract's terms, which was not found in this case. Although Kentucky and Utah have differing usury laws, no overriding Kentucky public policy was identified that would prevent the contractual interest rate set by the parties. Thus, the choice-of-law provision is deemed enforceable under Kentucky law.
Moreover, choice-of-law provisions are applicable to substantive issues, including requests for prejudgment interest, which is considered substantive under Kentucky law. PRA's request for prejudgment interest will therefore be governed by Utah law, as specified in the Credit Card Agreement's choice-of-law provision.
Under Utah Code 15-1-1, the default legal interest rate for loans is set at 10% per annum unless parties specify otherwise in their contract. Utah courts have not definitively ruled on whether establishing a contractual interest rate waives the statutory default rate; however, cases like Wilcox v. Anchor Water Co. suggest that the default rate only applies when no specified rate exists. In contrast, federal courts have interpreted similar state usury statutes as allowing recovery of statutory interest even if a contractual rate is established.
Notably, Kentucky's usury statute explicitly allows parties to contract for interest rates above the legal minimum, indicating that such agreements extinguish the right to statutory interest. Utah’s statute lacks similar language, meaning parties retain the right to collect statutory interest even if they agree to a contractual rate. Therefore, if GE waived its right to collect the agreed contractual interest, it would still retain the right to statutory interest. PRA, as an assignee, also maintains this right.
Furthermore, PRA is not alleged to have waived its right to collect statutory interest, and thus did not violate the Fair Debt Collection Practices Act (FDCPA) by attempting to collect below the statutory rate. Lastly, even if GE waived its right to collect statutory interest, Stratton must prove that GE also waived its right to contractual interest, which PRA concedes for the purposes of the appeal regarding the 21.99% rate.
PRA contends that a non-waiver clause in the Credit Card Agreement increases Stratton's burden of proof regarding GE's waiver of its right to collect interest at the agreed rate. The clause specifies that GE may choose not to exercise rights under the agreement without waiving them, and any waiver must be in writing. Under Utah law, such clauses are considered one factor in determining waiver.
PRA relies on expert testimony from Jane Cloninger, who opines on industry practices regarding the relinquishment of rights to charge interest after a credit card account is charged-off. Stratton challenges the relevance and admissibility of Cloninger’s testimony, asserting that it does not pertain to the case's core issues, particularly regarding GE's intent. The Court agrees that the relevant issue is whether PRA can retroactively charge interest from the time of charge-off to the debt's purchase.
Stratton also argues that Cloninger’s opinions regarding the Bill of Sale and Forward Flow Agreement should be disregarded, but the Court notes it did not rely on her testimony for interpreting these documents. While Cloninger's insights into trade customs are somewhat relevant for understanding GE’s conduct, her views on GE's intent are largely deemed irrelevant. The Court emphasizes that waiver is defined as an intentional relinquishment of a known right, which must be clearly expressed, either directly or impliedly.
Waiver of a contractual right occurs when a party acts in a way that contradicts its rights, causing prejudice to the other party. A waiver can be either express or implied. Stratton contends that GE waived its right to collect interest on her credit card account after charging it off. She supports her claim with several points: the account balance was $0.00 on December 19, 2008; GE did not charge interest from November 21, 2008, to January 4, 2010; GE ceased sending periodic statements after December 2008; the debt amount remained unchanged when PRA acquired it; and PRA’s notices indicated a balance excluding any interest.
The court, lacking substantial Utah precedent, looks to other jurisdictions for guidance. It notes that charging off accounts is a regulatory requirement, not a voluntary creditor action, thus not automatically indicating a waiver. PRA counters Stratton's argument by suggesting that GE may have deemed the debt uncollectible, initiated delinquency actions, or was statutorily barred from sending statements. Stratton argues that GE’s sale of the debt to PRA implies it considered the debt collectible, and the lack of interest charges signifies intent to waive that right.
However, precedent from the Sixth Circuit indicates that whether GE viewed the debt as collectible is irrelevant to the waiver issue. Other cases cited suggest that the absence of periodic statements does not impact the determination of whether interest was applied post-December 2008. Additionally, Stratton's points regarding the $0.00 account balance and the failure to impose interest are intertwined with TILA regulations, which necessitate periodic statements under certain conditions. The court thus reviews relevant district court cases to evaluate whether GE’s actions in charging off the account and halting interest collection constitute a waiver of its rights.
In McDonald, the court found that original creditors waived their right to collect contractual interest due to three factors: (i) the creditors charged off the accounts, (ii) the agreements with debt collectors explicitly stated that no "post charge-off interest" was included in the "unpaid balance," and (iii) original creditors testified that they refrained from imposing interest post charge-off to avoid periodic statement requirements. Similarly, in Simkus v. Cavalry Portfolio Services, the court recognized sufficient allegations to support a claim of waiver regarding interest collection after charge-off, as the collection agency attempted to collect the same amount two years post charge-off and reported this unaltered amount to credit bureaus.
In the current case, while GE charged off Stratton's account similar to McDonald, the agreement between GE and PRA lacks clear indication of waiver concerning post charge-off interest, as opposed to the agreements in McDonald. The Forward Flow Agreement acknowledged potential interest accumulation after charge-off, unlike McDonald’s agreements that emphasized the sale's primary purpose was to collect the unpaid balance. Additionally, there is no evidence from GE indicating a policy to waive interest to avoid periodic statements, and unlike McDonald, the credit card agreement in question includes a non-waiver clause that allows GE to not impose charges without waiving them.
The current situation also differs from Simkus as there is no evidence that GE attempted to collect an unchanged debt amount post charge-off, nor did GE report such an amount to credit bureaus. Stratton argues that GE waived its right to collect interest by reducing her account balance to $0.00, thus eliminating any basis for finance charges. However, it is established that the relevant balance is determined at the charge-off date, not at the time of account zeroing out.
PRA's request for a prejudgment interest figure excluding interest is not relevant to whether GE waived its right to collect such interest, as Stratton does not claim PRA waived its own rights. The court found Stratton's evidence insufficient to prove GE waived the right to collect interest post charge-off. Consequently, PRA did not attempt to collect interest that was waived.
The Fair Debt Collection Practices Act (FDCPA) aims to prevent abusive debt collection, operating under strict liability and interpreted from the perspective of the least sophisticated consumer. PRA’s liability depends on its right to collect prejudgment interest. Without such a right, PRA would violate the FDCPA by collecting unauthorized interest and misrepresenting the debt amount.
Under Utah law, PRA could seek statutory interest at 10%. Since Stratton cannot demonstrate GE waived its rights, and does not allege PRA waived any rights, PRA's demand for 8% prejudgment interest was legally justified. Additionally, PRA did not threaten any actions not legally permissible, and even though it misrepresented the debt amount as lower, FDCPA protections do not apply in this instance. Therefore, summary judgment is granted in favor of PRA.
Even if a violation occurred, PRA claims the bona fide error defense under the FDCPA, which protects debt collectors from liability if they can prove errors were unintentional and occurred despite reasonable procedures to prevent them. This defense applies to both state law mistakes and clerical errors.
A debt collector asserting a bona fide error defense must demonstrate three criteria: (1) the violation was unintentional, (2) it was due to a bona fide error, and (3) reasonable procedures to avoid such errors were in place. PRA has shown adequate procedures for avoiding errors related to prejudgment interest, including a two-week training program on FDCPA and state law compliance, mandatory assessments, and ongoing legal monitoring of relevant laws. However, PRA's evidence for the other two criteria is insufficient, lacking firsthand testimony about how Stratton's account was managed. Stratton has moved for summary judgment, arguing that the facts clearly establish a violation of the FDCPA, which includes four elements: the plaintiff is a consumer, the debt arises from personal transactions, the defendant is a debt collector, and a violation occurred. Stratton supports the first two elements with an affidavit, which PRA challenges due to a lack of physical signature. However, Stratton subsequently filed a signed amended affidavit, allowing the court to recognize it as valid evidence for the FDCPA claim.
Jaramillo's attorney indicated a signed declaration would be submitted upon receipt, but no such document has been filed. The plaintiff, Dede Stratton, qualifies as a “natural and individual person” who used the credit card solely for personal reasons. Evidence shows that Portfolio Recovery Associates (PRA) admits to acquiring charged-off consumer debts and has filed lawsuits in Kentucky to collect on these accounts, establishing that PRA is a debt collector under the Fair Debt Collection Practices Act (FDCPA). PRA did not refute Stratton's claims that she is a consumer, that PRA is a debt collector, and that her debt arose from a proper transaction, thereby satisfying the criteria for summary judgment. However, Stratton failed to prove that PRA violated the FDCPA, leading to the denial of her motion for summary judgment and the granting of PRA's motion. Consequently, Stratton's claims against PRA are dismissed with prejudice, and the case is removed from the court's docket. Stratton's arguments regarding credit card securitization agreements are insufficient, as she has not shown that GE's assignment of receivables to PRA excluded GE's rights. Additionally, the evidence suggests that GE could provide "Account Documents" to PRA as needed, and the absence of a specific document does not negate PRA's rights. The available "Load Data" from GE supports PRA's understanding of the contractual interest rate on Stratton's debt. Relevant state statutes permit a default interest rate of nine percent per annum when no other rate is agreed upon.
Loans and forbearances of money, goods, or things in action typically bear interest at a statutory rate of twelve percent per annum unless an alternative rate is agreed upon in writing. Federal statutes, specifically 15 U.S.C. § 1692f(l), prohibit the collection of interest without authorization, while 15 U.S.C. §§ 1692e(2)(A) and (e)(5) prevent false representations regarding debt and threats of illegal actions, respectively. The court considers the waiver of rights under Kentucky law but ultimately examines it under Utah law due to the lack of relevant case law regarding Utah's usury statute.
The non-waiver clause in the contract does not conflict with Kentucky policy and is supported by Kentucky case law affirming that acceptance of late payments does not constitute waiver. The court concludes that Kentucky law allows for the application of Utah law concerning the non-waiver clause. Although a no-waiver provision can potentially be waived, Stratton has not raised this point, so it remains a factor in the waiver analysis. Stratton's assumption that GE's cessation of interest accrual post charge-off equates to a waiver is challenged, as prejudgment interest under Utah law accrues from the date payments are due, not upon demand for payment. This principle is corroborated by Kentucky law as well. Moreover, PRA argues that Stratton's lack of disclosure regarding periodic statements should preclude certain evidence, a point Stratton does not address. It is established that a party cannot introduce undisclosed facts from discovery in a summary judgment response.
The Court does not consider certain evidence when deciding on the waiver issue in the case involving Stratton, whose arguments about missing periodic statements parallel her claims regarding a $0.00 account balance, which was properly disclosed. PRA disputes its liability under the Fair Debt Collection Practices Act (FDCPA), particularly questioning whether Stratton's debt is valid. The Court will address these points in relation to Stratton’s summary judgment motion. PRA contends that the Sixth Circuit's view in Stratton should not be regarded as the law of the case, citing that dictum is not legally binding. However, the Court asserts that its finding that an assignee can violate the FDCPA by collecting interest waived by the assignor is not dictum and agrees with this interpretation. Although PRA references district court rulings that support its position on interest collection, the Court finds them unconvincing. Under the FDCPA, the burden is on the debt collector to ascertain if any rights to prejudgment interest have been waived. The Court indicates that if interest has been waived, it cannot be collected, as outlined in 15 U.S.C. § 1692f(l). The Court also critiques the relevance of a cited case, Miljkovic, to the current matter, observing it did not involve an erroneous debt amount statement. Stratton claims PRA's response to her motion was untimely; however, PRA’s sur-reply establishes compliance with procedural rules.
