Paul J. Schmitt v. Fma Alliance, Doing Business as Fma Alliance, Ltd. Fma Alliance, Limited Partnership Fma Alliance, L.P., a State of Texas Limited Partnership
Docket: 03-4057
Court: Court of Appeals for the Eighth Circuit; February 8, 2005; Federal Appellate Court
Paul J. Schmitt incurred a debt to First Bank U.S.A. and, after failing to pay, retained attorney William Michelson to represent him. Michelson notified First Bank of his representation and Schmitt's inability to pay, advising that First Bank should inform its collection agency. Despite this, First Bank transferred the account to FMA Alliance, which subsequently sent a collection letter to Schmitt, prompting him to file a complaint alleging a violation of the Fair Debt Collection Practices Act (FDCPA) for contacting him despite his attorney representation. The Magistrate Judge concluded that FMA lacked knowledge of Schmitt's representation, leading the district court to adopt the recommendation and dismiss the complaint without prejudice. Schmitt's appeal argued that First Bank's knowledge of his representation should be imputed to FMA. However, the court affirmed the dismissal, ruling that the FDCPA requires actual knowledge of the debtor's representation for a claim to be valid, and that mere imputed knowledge from the creditor does not suffice. Implied knowledge theory is inconsistent with established agency law, which holds that while an agent's knowledge is imputed to the principal, the opposite does not apply. Relevant case law, including S.O.G.-San Ore-Gardner v. Mo. Pac. R.R. Co. and Siharath v. Citifinancial Servs., confirms that an agent cannot be assumed to have knowledge that the principal has not disclosed. Schmitt acknowledges this principle but argues that the Fair Debt Collection Practices Act (FDCPA) creates an exception, citing two cases: Powers and Micare. Powers asserts that creditors must inform debt collectors of material facts, while Micare states that a creditor's knowledge can be imputed to a debt collector if known prior to file transfer. However, the court declines to adopt the reasoning of these cases, noting that the FDCPA does not provide textual support for such an exception and emphasizes the distinction between creditors and debt collectors, which the FDCPA does not regulate. The court also questions whether the creditor-debt collector relationship constitutes a principal-agent relationship, pointing out that debt collectors are often independent contractors. Consequently, the district court's decision is affirmed.