Court: District Court, D. Oregon; June 22, 2004; Federal District Court
John Shelton appeals the Bankruptcy Court's Amended Order and Injunction from January 16, 2004, and the Order from November 25, 2003, regarding his proceedings against Debtors Wilson and Krysl. Shelton seeks a determination that a debt owed by Wilson and Krysl to a third party, which he acquired, is exempt from discharge, or alternatively, that they should be denied discharge in bankruptcy. Wilson and Krysl moved to dismiss Shelton's case, claiming he lacked standing because he was conducting business as an unregistered collection agency under Oregon law. They sought an injunction, damages, and legal fees based on Oregon law and 11 U.S.C. 523(d).
A detailed evidentiary hearing was held on April 16, 2003, after which the Bankruptcy Court dismissed Shelton's case, ruling that he lacked standing. Under the Bankruptcy Code, only a creditor can initiate proceedings to determine a debt's non-dischargeability. Shelton claimed to be a creditor based on an assignment from ATEZ, Inc., but the law defines a creditor as someone with a claim against the debtor that arose before the relief order.
Additionally, under Oregon law, a collection agency must be registered to collect debts, and Shelton's activities of soliciting and purchasing claims indicate he qualifies as a collection agency. Since he was not registered, Wilson and Krysl argued that he did not meet the statutory requirements to pursue his claims. Shelton's history of acquiring claims from ATEZ and others, typically evidenced by written assignments, was also noted, indicating he files as an assignee in collection suits.
In 2002, Shelton purchased a $636.87 claim from ATEZ against debtor Katherine Wilson through a written assignment. Following a direct payment by a defendant to ATEZ, Shelton dismissed the case, viewing the debt as satisfied. Shelton, who identifies as a consultant specializing in commercial debt collection, was found to be soliciting claims and thus required to register as a collection agency, which he had not done. He claimed exemption under a statutory provision for "factoring services," which excludes those engaging in soliciting or collecting purchased accounts from commercial clients under an agreement. However, the court found no evidence of such an agreement beyond the single claim assignment, emphasizing the need for a more substantial ongoing relationship as indicated by the statute's use of "accounts" in plural. The Bankruptcy Court noted the historical context of collection agency regulation in Oregon, indicating that previous definitions and exclusions have evolved, yet there remains no clear authority defining "under an agreement." The court concluded that Shelton's situation did not meet the statutory requirement for exemption as he lacked the necessary registration.
The legal document addresses the evolution of the definition and regulation of "factoring services" in Oregon law. Initially, in 1977, the definition included parties that solicited or collected on commercial accounts purchased under agreements with recourse. However, in 1981, the legislature removed "factoring services" and billing services from regulation, substituting the existing exclusion for "purchasers of accounts" with a new exemption for "factoring services," which necessitated that purchases be made "under an agreement."
Wilson and Krysl contend that this historical context indicates that current language implies an agreement beyond simply purchasing individual claims. The document emphasizes the common law understanding of "factoring" as financing obtained through the purchase of accounts receivable at a discount, with the factor assuming the risk of loss. A relevant case, Frutiger v. Department of Revenue, illustrated this by characterizing a corporation engaged in a financing agreement involving accounts receivable as being in the factoring business.
Wilson and Krysl argue that the original legislative terms for "factoring" align with this modern understanding, necessitating an overall financing agreement. However, evidence indicates no such agreement exists between Shelton and ATEZ, as ATEZ's president confirmed that Shelton has not provided factoring services. The sporadic purchase of claims does not establish a pattern of ongoing factoring services. Consequently, the court concludes that Shelton does not qualify for the registration exemption for providing "factoring services." The Bankruptcy court further reasoned that broad interpretation of Shelton's claims would lead to an absurd outcome, undermining the statutory exclusion intended for "collection agencies," thereby reinforcing the need for a continuous agreement for factoring services as mandated by current law.
Shelton lacks an underlying financing agreement for purchasing ATEZ's accounts, qualifying him as a collection agency but not as a provider of 'factoring services.' He claims a violation of his Fifth Amendment due process rights due to insufficient notice regarding a potential injunction following a hearing on April 16, 2003. However, Shelton was adequately notified of the potential injunction through prior communications from Wilson and Krysl, including their proposed First Amended Answer and the motion to dismiss, which stated that Shelton was violating Oregon Collection Agency statutes. The Bankruptcy Court explicitly mentioned considering an injunction at the start of the April 16 hearing, and Shelton acknowledged readiness to proceed, indicating actual knowledge of the injunction possibility.
The court found that Shelton lacked standing, was in violation of the statutes, and dismissed his complaint, having conducted a full evidentiary hearing. Shelton argued he could have presented witnesses had he received better notice, but the court noted that he was required to demonstrate his exempt status under Oregon law. Shelton did not present offers of proof regarding these witnesses, and the court provided ample opportunity for him to present his case, negating any due process violation.
Shelton also contends he was denied the chance to assert two affirmative defenses against Wilson and Krysl’s counterclaims. Even if true, the court deemed any potential harm minimal, noting that federal pleading rules do not require stating ultimate facts, which were appropriately pled in this case. Shelton's claim of an affirmative defense based on 'exemption' relates to the previously rejected 'factoring' exclusion, further weakening his position.
The Bankruptcy Court adequately addressed Shelton's proposed second affirmative defense. Shelton claimed an abuse of discretion regarding the geographical scope of an injunction, which stated "in this district" but was reflected as "in the state of Oregon" in the Order. The court clarified that there is only one federal district in Oregon, thus finding no inconsistency. The injunction met the requirements of Fed. R. Civ. P. 65(d). Shelton also contested the Court's finding that Wilson and Krysl suffered injuries from Shelton’s unlawful collection actions. The court found sufficient evidence of harm, including imputed damages under ORS 697.087(1) and incurred attorney’s fees for defending against the complaint. Bankruptcy Court findings are given significant weight and can only be overturned if clearly erroneous. Consequently, Shelton’s appeal against the Bankruptcy Court's Amended Order and Injunction is denied, and the injunction is affirmed, leading to the dismissal of the case.
