A debt collecting law firm’s alleged practice of filing collection suits and then delaying or dismissing them if the consumer appeared for trial could violate the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Eighth Circuit has decided. The appellate court reinstated the consumer’s FDCPA suit against the Gurstel Chargo law firm and its client in an opinion that, point by point, rejected multiple legal decisions by a U.S. district judge (Demarais v. Gurstel Chargo, P.A.).
State court collection suit. Gurstel Chargo sued the consumer on behalf of a client, RAzOR Capital, which claimed to own a charged-off credit card account the consumer originally owed to Citibank. The suit demanded more than $25,000, including $5,000 in interest the consumer alleged was added after Citibank charged off the account.
The consumer never answered the state court complaint; however, Gurstel Chargo did not ask for a default judgment. Instead, the firm asked the judge to set a trial date. According to the consumer, the firm routinely did this because if a consumer did not appear for trial the firm could ask for a judgment on that basis and avoid onerous requirements that Minnesota law places on default judgments in consumer debt collection suits.
To the law firm’s probable surprise, the consumer and his attorney appeared on the scheduled trial date. Gurstel Chargo had no witnesses or evidence available—which the consumer alleged also was the firm’s normal practice—and obtained a continuance.
On the new trial date, Gurstel Chargo again was unprepared to proceed. The firm then dismissed the suit with prejudice.
Nearly three weeks after the case was dismissed, Gurstel Chargo sent discovery and admission requests to the consumer’s attorney. The cover letter noted it was a communication from a debt collector and an attempt to collect a debt, and it demanded a response within 30 days. Notably, before the continued trial date, the consumer’s attorney had served discovery requests on RAzOR that essentially were ignored.
FDCPA suit. Four months after the collection suit was dismissed, the consumer sued both Gurstel Chargo and RAzOR in federal court for FDCPA claimed violations. The district judge dismissed the suit after deciding that any claim for violations based on the second trial date were barred by the statute of limitations, the firm had engaged only in “permissible litigation tactics,” and the tardy discovery cover letter was not likely to deceive either the consumer or his attorney.
Standing to sue. As has become common in suits under consumer financial protection laws, the appellate court began its analysis by considering whether the consumer had described a concrete injury in fact that gave him standing to sue. The court decided that, under Spokeo, Inc. v. Robins, he had standing to assert all of his FDCPA claims.
To begin with, while the letter that accompanied the tardy discovery items did not cause any tangible harm, it nevertheless caused an injury in fact, the court said. Congress wanted the FDCPA to address the intangible harm of being subjected to baseless legal claims, and that harm was comparable to a common law tort of unjustifiable litigation. The letter, with its express compliance deadline and debt-collection language, easily could cause mental distress or other harms.
It was irrelevant that the letter was sent to the consumer’s attorney rather than to the consumer, the court added. It was a matter of routine that the demands would come to the consumer’s attention.
The events of the first trial date, when Gurstel Chargo obtained a continuance and new trial date, clearly described an injury in fact, the court continued. The consumer hired an attorney, served discovery requests, and prepared for and appeared for the trial. These steps would have cost the consumer both time and money, and could have caused mental distress as well.
Statute of limitations. Although only four months passed between the first trial date and the date the consumer filed his suit, the district court judge concluded the FDCPA’s one-year statute of limitations had run. This was because the judge believed that communications at the time of the first trial date simply related back to the original complaint and did not constitute a new FDCPA violation that would have a new limitation period.
That was wrong, the appellate court said. It was irrelevant that a violation might restate an earlier violation. Each violation would be an individual violation with a separate statute of limitations.
Continuance request. The consumer asserted that Gurstel Chargo’s request for a continuance at the first trial date was a misrepresentation under the FDCPA because the firm was threatening an action it did not intend to take—trying the case. The district judge said the request constituted “permissible litigation tactics and not actionable false assertions.”
Wrong again, the appellate court said. The consumer had plausibly claimed that the firm threatened to go to trial, on both trial dates, yet never intended to do so. Not only an unsophisticated consumer but a competent attorney would believe that Gurstel Chargo intended to go to trial when it asked for a continuance for that very purpose.
Gurstel Chargo could have made a threat with making an affirmative representation, the court continued. What mattered was what the consumer would have been likely to believe.
The court also accepted that the consumer had alleged facts showing the firm never intended to go to trial. He claimed that continuances and dismissals were Gurstel Chargo’s regular tactic, going so far as to provide the docket numbers of comparable court cases. The firm’s actions in his own case—failing to respond to his discovery requests and appearing unprepared at the second trial date—were additional relevant facts.
An ordinarily “permissible litigation tactic” could violate the FDCPA, the court added. Attorneys in litigation must comply with the act.
Tardy discovery request. According to the consumer, the discovery requests that Gurstel Chargo sent after the collection suit was dismissed with prejudice amounted to an attempt to collect a debt that was not owed. That was a violation of the FDCPA ban on unfair or unconscionable collection practices, he claimed.
The district judge said there could be no violation because the consumer’s claims “do not show that anyone was likely to be misled, deceived, or otherwise duped . . .”
Wrong yet again, the appellate court pronounced. Seizing on the judge’s language, the appellate court emphasized that “There is no ‘misled, deceived, or duped’ requirement” in the plain language of the FDCPA ban on unfair or unconscionable debt collection practices. Misleading representations are explicitly prohibited by a dedicated section of the FDCPA, the court pointed out, so there was no reason to infer an implicit prohibition in the ban on unfair practices.
The court’s summary of the district judge’s errors merits consideration. In the court’s own words:
The attempted collection of debts not owed harms consumers not just by inducing the payment of false claims. It also forces consumers to spend time and money addressing the false claims—even if they know they do not actually owe the claimed debt. Being subjected to attempts to collect debts one knows he or she does not owe can disrupt marriages, impair performance on the job, and cause public embarrassment—the very harms motivating Congress to pass the FDCPA.For more information about debt collection practices, subscribe to the Banking and Finance Law Daily.