Novak v. Monarch Recovery Management

Citations: 235 F. Supp. 3d 1039; 2016 WL 7212476; 2016 U.S. Dist. LEXIS 171724Docket: Case No. 15 C 2448

Court: District Court, N.D. Illinois; December 12, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiff alleges that defendant Monarch Recovery Management, Inc. violated the Fair Debt Collection Practices Act (FDCPA) by sending a dunning letter after she filed for Chapter 13 bankruptcy. The court addressed cross-motions for summary judgment, granting the defendant's motion and denying the plaintiff’s. The undisputed facts indicate that the plaintiff incurred debt with Credit One Bank in January 2013, which was later transferred to MSW Capital, LLC. MSW placed the account with Monarch for collection in August 2014. Monarch conducted a bankruptcy scrub of the account and sent collection letters on August 13 and October 8, 2014. The plaintiff filed for bankruptcy on November 20, 2014, without Monarch or MSW being notified. Monarch sent a third collection letter on January 5, 2015, unaware of the bankruptcy. They only received notice on January 26, 2015, through the plaintiff's attorney.

The court applied the standard for summary judgment, requiring no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The plaintiff’s complaint included allegations under several FDCPA provisions, asserting that demands for payment during bankruptcy were false representations. The court noted that debt collectors may be held strictly liable for such violations but can defend against liability by proving that the violation was unintentional and resulted from a bona fide error despite the presence of procedures to avoid such errors. The central issue was whether Monarch could successfully assert this bona fide error defense. The court found that the violation was indeed unintentional, as there was no evidence Monarch knew of the bankruptcy before sending the contested letter, and the plaintiff did not provide a basis to argue that the violation was intentional.

Proof of the debt collector's lack of awareness regarding the bankruptcy is crucial to establishing that any violation was unintentional. The plaintiff's response to Monarch's bona fide error defense primarily addresses whether Monarch's procedures for avoiding communication with consumers in bankruptcy were adequately designed to prevent such errors. Monarch's President, Diane Mazzacano, provided testimony regarding the company's compliance measures with the Fair Debt Collection Practices Act (FDCPA), stating that it is generally unbeneficial for debt owners to assign bankruptcy accounts to debt collectors. Consequently, Monarch does not typically receive accounts for collection from clients when a consumer has filed for bankruptcy.

Mazzacano detailed that Monarch utilizes an outside bankruptcy 'scrub' service to check all new accounts for bankruptcy before initiating collection efforts. Furthermore, there are protocols for collectors to follow when a consumer indicates they have filed for bankruptcy, including notating the account and ceasing collection efforts. Daily oversight by various managerial levels ensures adherence to FDCPA regulations.

Monarch provided two versions of its bankruptcy policy, specifying the methods by which it may learn of a consumer's bankruptcy: verbal notification from the consumer, written notifications, or alerts from the scrub service. The plaintiff argues that Monarch’s procedures are insufficiently tailored to prevent FDCPA violations, highlighting discrepancies in the 'scrub notification' procedures between the two policy versions. The initial policy claimed that all new accounts would be sent to Experian for processing within 24 hours, with subsequent monitoring for six months. However, Mazzacano expressed uncertainty about whether this policy was operational when the plaintiff received a collection letter on January 5, 2015. A later version of the bankruptcy policy was produced, indicating that it was the relevant policy in effect at that time.

The policy in question includes a section titled 'Experian Notification,' indicating that new accounts are sent to Experian within 24 hours. It details that positive bankruptcy hits are downloaded back to Monarch, which then processes and closes these hits according to client specifications. The plaintiff argues that Monarch's late supplemental discovery response, which does not mention Experian's ongoing monitoring, undermines its liability defenses. She asserts that if Monarch's procedures were effective, it would have recognized her bankruptcy before sending a letter that violated the Fair Debt Collection Practices Act (FDCPA). However, the bona fide error defense posits that a violation can occur despite having reasonable procedures in place, and merely proving a violation does not invalidate this defense. 

The court references the Hyman v. Tate case, noting that Monarch's bankruptcy policy, which includes reliance on client information, training, monitoring, and a process for checking bankruptcies via Experian, meets and exceeds the standards set forth by the Seventh Circuit. The plaintiff criticizes these procedures as flawed, arguing that Experian does not actively seek bankruptcy information and that Monarch should have consulted all major credit agencies. However, the court clarifies that debt collectors are not required to take every precaution, only reasonable steps to prevent violations. 

It is established that Experian did not identify the plaintiff’s bankruptcy because she filed after the scrub was performed. The court concludes that Monarch has successfully established the bona fide error defense. Additionally, Monarch is entitled to summary judgment on the plaintiff's claims under Counts III and IV of the complaint, as it is undisputed that collection efforts ceased before Monarch was aware of the bankruptcy, rendering her claims under § 1692f unfounded.

Monarch's liability under § 1692c(a)(2) is negated due to a lack of evidence that it knew the plaintiff was represented by counsel when it sent a letter on January 5, 2015. This section requires actual knowledge of the consumer’s representation for liability to apply. The plaintiff has not contested this point nor provided evidence to counter Monarch's assertion, which is supported by the testimony of its president, Diane Mazzacano. The plaintiff's claim that Monarch's procedures should have alerted it to her bankruptcy is deemed irrelevant in this context. Consequently, Monarch is entitled to summary judgment on both the § 1692f and § 1692c(a)(2) claims. The court emphasizes that legal arguments should not be presented in the L.R. 56.1(b) submissions, which should only address whether facts are contested. The absence of a material factual dispute regarding Monarch’s procedures leads to the conclusion that the defendant's asserted facts are accepted as true. The court notes that the outcome would remain unchanged even under a more detailed three-prong analysis of intent and error, and that the plaintiff has not raised any pertinent factual dispute regarding Monarch’s policies. Summary judgment is granted in favor of Monarch, while the plaintiff’s motion for summary judgment is denied.