Rebecca H. and Bryan J. DITTY, et al., Plaintiffs,
v.
CHECKRITE, LTD., INC.,
et al., Defendants.
973 F.Supp. 1320 (1997), Civil No. 2:95-CV-430C.
United States District Court, D. Utah, Central Division.
August 11, 1997.
Lester A. Perry, Kesler & Rust, Salt Lake City, UT, for
Petitioners. Daniel P. Shapiro,
Goldberg, Kohn, Bell, Black, Roosenbloom & Moritz, Ltd., Chicago, IL, Mark
O. Morris, Snell & Wilmer LLP, Salt Lake City, UT, Paul C. Droz, Blackburn
& Stoll LC, Salt Lake City, UT, for Respondents.
AMENDED MEMORANDUM DECISION AND ORDER
CAMPBELL, District Judge.
This matter is before the court on the parties'
cross-motions for summary judgment. A hearing on the parties' motions was held
on April 29, 1997. Lester Perry appeared on behalf of plaintiffs, Mark Morris
and Julie Thomas appeared on behalf of CheckRite,1 and Paul Droz and Dori
Petersen appeared on behalf of Richard H. DeLoney (sometimes
"DeLoney") and DeLoney & Associates, L.L.C. ("DeLoney &
Associates"). Having fully considered the arguments of counsel presented
at the hearing, the memoranda and supporting materials submitted by the
parties, and the applicable legal authorities, the court now enters this
Memorandum Decision and Order.
I. BACKGROUND
Plaintiffs are individuals who wrote bad checks for retail
purchases in amounts ranging from $2.85 to $46.68. These checks were referred
by various merchants to CheckRite for collection. CheckRite sent two collection
letters to plaintiffs and subsequently relinquished collection efforts to
DeLoney & Associates, the law firm representing CheckRite. DeLoney &
Associates sent a third [ 973 F.Supp. 1325 ] letter, which informed each
plaintiff that their dishonored check "ha[d] been referred by CheckRite to
our law firm for litigation." The letter went on to state that the matter
could be settled, out of court, for the sum of the face amount of the check, a
$15.00 service charge, and an amount ranging from $73.00 to $83.00 listed as
"Legal Consideration for Covenant not to Sue." The letter sent to the
Dittys also warned of a potential civil action for the amount of the check and
stated that other actions, "including fraud in the inducement, negligent
misrepresentation, civil shoplifting, or theft by check may also be considered."
This warning was not included in the letters sent to the other plaintiffs. In
addition to providing check collection services, CheckRite maintains a
nationwide check verification system that allows subscribers to access a
database to determine whether a check writer has written bad checks in the
past.
Richard DeLoney established DeLoney & Associates in
September 1994. From the date of its formation until February or March of 1996,
DeLoney & Associates was organized as a limited liability company under
Utah law. In approximately March 1996, DeLoney & Associates reorganized as
a Utah professional corporation.2 Richard DeLoney has always been the firm's
sole attorney. He authored the collection letters sent to the plaintiffs,
trained the firm's collection agents, and determined the settlement amounts
offered to plaintiffs. DeLoney & Associates collected dishonored checks for
CheckRite in the states of Utah, Arizona, and Washington. CheckRite was the
firm's largest client, generating one-third to one-half of the firm's income.
Between July 1, 1994 and May 9, 1995, CheckRite referred to DeLoney &
Associates approximately 9,025 dishonored checks written by Utah residents.
During this period, DeLoney & Associates filed twenty-four lawsuits in
connection with its collection work for CheckRite. This total included actions
for fraud in the inducement, negligent misrepresentation, and civil
shoplifting; however, none of the fraud, misrepresentation, or shoplifting
actions were filed before DeLoney & Associates sent its March 6, 1995
collection letter to the Dittys.
DeLoney & Associates collected dishonored checks for
CheckRite pursuant to an oral agreement negotiated by Richard DeLoney and Neil
Auerbach, CheckRite's Senior Vice-President. Under the agreement, when DeLoney
& Associates settled an account, CheckRite was to receive the face amount
of the dishonored check plus $20.00; DeLoney & Associates was entitled to
the remainder of the settlement proceeds.
CheckRite's Salt Lake City offices and DeLoney &
Associates occupied space in the same office building. Accounts were referred
by CheckRite to the firm electronically, and once the referral was made,
DeLoney & Associates was able to access CheckRite's computer system to
review account information. Upon receiving an account referral, DeLoney &
Associates' computer system automatically generated a collection letter
addressed to the writer of the dishonored check.
Plaintiffs'3 Third Amended Complaint asserts claims under
the Fair Debt Collection Practices Act ("FDCPA" or "Act"),
15 U.S.C. §§ 1692-1692o (1982 & Supp.1997), claims under the Fair Credit
Reporting Act ("FCRA"), 15 U.S.C. §§ 1681-1681u (1982 &
Supp.1997), and various state law causes of action4 against CheckRite, DeLoney &
Associates, and Richard H. DeLoney.5 Plaintiffs [ 973 F.Supp. 1326 ] previously
sought summary judgment against CheckRite, DeLoney & Associates, and
Richard DeLoney; the latter two defendants previously moved to dismiss
plaintiffs' initial complaint. These prior motions presented some of the issues
now raised by the pending motions. On January 25, 1996, the court denied the
prior motions on the ground that the record did not permit a legal finding that
collection of dishonored checks falls outside the coverage of the FDCPA. Order,
January 25, 1996 (Docket No. 76).
II. STANDARD OF
REVIEW
Summary judgment is proper "if the pleadings,
depositions, answers to interrogatories and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(c). In applying this standard, the court must
construe all facts and reasonable inferences in the light most favorable to the
nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475 U.S.
574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986): Pueblo of Santa Ana v.
Kelly,104 F.3d 1546, 1552 (10th Cir.1997). The fact that the parties have filed
cross-motions for summary judgment does not affect the applicable standard.
Heublein, Inc. v. United States,996 F.2d 1455, 1461 (2d Cir.1993).
Once the moving party has carried its burden, Rule 56(e)
"requires the nonmoving party to go beyond the pleadings and by ...
affidavits, or by the `depositions, answers to interrogatories, and admissions
on file,' designate `specific facts showing that there is a genuine issue for
trial.'" Celotex Corp. v. Catrett,477 U.S. 317, 324, 106 S.Ct. 2548, 2553,
91 L.Ed.2d 265 (1986) (quoting Fed. R.Civ.P. 56(e)). The non-moving party must
"make a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party will bear the burden of
proof at trial." Id. at 322, 106 S.Ct. at 2552. The mere existence of a
scintilla of evidence in support of the non-moving party's case is
insufficient; there must be evidence on which the jury could reasonably find
for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106
S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
III. DISCUSSION
The following issues are raised by the pending motions: (1)
the scope of the FDCPA, that is, whether the obligation created by a dishonored
check is a "debt" as defined by the Act; (2) if the Act does apply,
whether defendants' conduct violated it; (3) whether defendants violated the
FCRA; (4) whether CheckRite may be held liable for the actions of its attorney;
(5) whether Richard DeLoney may be held personally liable for the collection
activities of DeLoney & Associates; (6) whether plaintiffs are entitled to
injunctive relief; and (7) whether the FDCPA claims of plaintiffs Crandall and
Robison are cognizable under the Act.
A. Scope of the FDCPA
The FDCPA prohibits a debt collector from using certain
abusive practices to collect a "debt;" therefore, the Act's scope is
necessarily limited by its definition of this term. The Act defines a
"debt" as:
any obligation or alleged obligation to pay money arising
out of a transaction in which the money, property, insurance, or services which
are the subject of the transaction are primarily for personal, family, or
household purposes whether or not such obligation has been reduced to judgment.
15 U.S.C. § 1692a(5). Defendants maintain that the Act is
not implicated here because a dishonored check does not involve an offer or
extension of credit, a condition defendants argue must be read into the
definition of "debt."
Three circuits have addressed the breadth of the FDCPA's
definition of "debt:" the Third Circuit in Zimmerman v. HBO Affiliate
Group,834 F.2d 1163 (3d Cir.1987), the Seventh Circuit in Bass v. Stolper,
Koritzinsky, Brewster & Neider,111 F.3d 1322 (7th Cir.1997), and the Ninth
Circuit in Charles v. Lundgren & Assocs., P.C.,119 F.3d 739 (9th Cir.1997).
In Zimmerman, the defendant cable television companies demanded that plaintiffs
pay for allegedly pirated microwave television signals. Plaintiffs sued,
arguing, inter alia, that the defendants' collection methods ran afoul of the
FDCPA. Affirming the district court's dismissal of plaintiffs' FDCPA claims,
the Third Circuit first determined [ 973 F.Supp. 1327 ] that the term
"transaction" in the Act's definition of "debt" did not
include asserted tort liability, but rather included only contractual or
consensual consumer exchanges. Zimmerman, 834 F.2d at 1168. Pirating cable
television signals, reasoned the court, did not constitute such an exchange.
Id. The court then added, without discussion or analysis, that a
"debt" under the FDCPA arises from "the same type of transaction
as is dealt with in all other subchapters of the Consumer Credit Protection
Act, i.e., one involving the offer or extension of credit to a consumer."
Id. However, Zimmerman did not address the issue here — whether the obligation
created by a dishonored check constitutes a "debt" under the Act.
In Bass, the Seventh Circuit confronted this issue and
addressed many of the same arguments advanced by defendants. Beginning with the
text of the FDCPA itself the court determined that the Act's definition of
"debt" was clear, unambiguous, and devoid of any condition mandating
that a "debt" involve an offer or extension of credit. Bass, 111 F.3d
at 1325-26. Thus, "[a]s long as the transaction creates an obligation to
pay, a debt is created." Id. at 1325. The court concluded that a check
creates just such an obligation to pay, and should the check be dishonored, the
obligation remains. Id. Looking beyond the Act's terms, the court determined
that "the [FDCPA's] legislative history, provides an unequivocal statement
of the drafters' intent on this issue: [T]he committee intends that the term
`debt' include consumer obligations paid by check or other non-credit consumer
obligations."' Id. at 1327 (quoting H.R.Rep. No. 95-131, 95th Cong. 1st
Sess., 4 (March 29, 1977)), U.S. Code Cong. & Admin. News at 1695, 1698. In
light of the Act's language and legislative history, the court rejected the
notion that the Act's codification as an amendment to the Consumer Credit
Protection Act ("CCPA"), 15 U.S.C. §§ 1601-1615, evidenced
congressional intent to limit coverage of the Act to debts arising from credit
transactions. Id. at 1328. The court found the statutory structure unpersuasive
"in light of the continuing expansion of the CCPA's protective
landscape," and observed that "[a]lthough the CCPA as originally
enacted may have focused on consumer protection in credit-based financial
transactions, amendments to the Act suggest an enlargement of the CCPA to
include consumer protections in other financial arenas." Id. The location
of these amendments, including the FDCPA, "as amendments to the CCPA
evidence the nature of the CCPA as a set of functionally free-standing acts
united not by their regulation of credit transactions, but by their goal of
providing protection to consumers in a variety of potentially abusive financial
situations." Id. Distinguishing Zimmerman, the court observed that the
Third Circuit's sweeping conclusion was based solely on the Act's placement in
the CCPA and considered neither the unambiguous language of the Act's
definition of "debt" nor the Act's legislative history, factors that
the Seventh Circuit found probative of Congress' intent. Id. at 1326.
Charles represents the most recent appellate examination of
the FDCPA's coverage. Finding the Seventh Circuit's reasoning in Bass to be
"sound," the Ninth Circuit concluded that "[a] dishonored check
constitutes an FDCPA `debt,' and therefore the FDCPA prohibits check collectors
from using abusive practices." Charles, 119 F.3d at 742.
This court joins the Seventh and Ninth Circuits in reaching
the same conclusion. Accordingly, defendants' motions for summary judgment are
denied on this issue.
B. FDCPA Claims
Plaintiffs allege that defendants violated the Act by: (1)
attempting to collect excessive fees; (2) violating plaintiffs' debt validation
rights; (3) making a variety of threats and misleading representations; (4) and
improperly using CheckRite's check verification system (also claimed to be a
violation of the FCRA).
1. Excessive Fees
Plaintiffs maintain that defendants' attempts, in some
instances successful, to collect amounts significantly greater than the face
amounts of plaintiffs' dishonored checks violated § 1692f(1) of the Act, which
prohibits "[t]he collection of any amount ... unless such amount is
expressly authorized by the agreement creating the debt or permitted by [ 973
F.Supp. 1328 ] law" and violated § 1692e, which prohibits "any false,
deceptive, or misleading representation or means in connection with the
collection of any debt."6 It is clear that plaintiffs never authorized
defendants, by agreement or otherwise, to collect the fees they sought.
Therefore, unless such fees are permitted by Utah law, defendants' collection
efforts violated § 1692f(1). See Patzka v. Viterbo College,917 F.Supp. 654, 659
(W.D.Wis.1996); Newman v. Checkrite,912 F.Supp. 1354, 1367-68 (E.D.Cal.1995).
Utah's dishonored instruments statute, Utah Code Ann. §§
7-15-1 to -3 (1995), allows the holder of a dishonored check to "impose a
service charge that may not exceed $15." § 7-15-1(2). The drawer of a
dishonored check may be liable for a sum greater than the face amount of the
check, plus the service charge, only if a civil collection action is filed. §
7-15-1(3). CheckRite never itself attempted to collect excessive fees. Its
collection letters requested from each plaintiff only the face amount of the
dishonored check plus a $15.00 service charge. However, as discussed more fully
infra, Part III.D, CheckRite may incur vicarious liability under the Act for
violations of § 1692f(1) committed by DeLoney & Associates.
It is undisputed that DeLoney & Associates attempted to
collect fees greater than $15.00 through the "covenant not to sue"
practice without first having filed suit. Indeed, the very goal of the letter
sent by the firm to plaintiffs was to settle their accounts short of actual
litigation. The dishonored instruments statute is clear: Until a civil action
is filed, fees in excess of $15.00 may not be charged. Therefore, the fees
DeLoney & Associates attempted to collect were not permitted by Utah law and,
in fact, violated Utah law.
DeLoney & Associates argues that because it could have
sued plaintiffs for civil conversion or shoplifting instead of proceeding under
the dishonored instruments statute, the $15.00 limit of Utah Code Ann. §
7-15-1(2) does not apply. However, the firm's own conduct makes clear that it
was proceeding under the dishonored instruments statute, for its collection
letter, sent to each plaintiff, listed a "service charge" in the
amount of $15.00. Richard DeLoney testified in his deposition that this figure
was used because it was the specific amount allowed by Utah Code Ann. §
7-15-1(2). Further, to accept DeLoney & Associates' argument would permit
holders of dishonored checks to easily avoid the provisions of the dishonored
instruments statute. Such a result would undermine the effectiveness of the
statute and would be inconsistent with Utah Legislature's intention that
dishonored checks be governed by the specific procedures outlined in the
statute.
Because the excessive fees charged by DeLoney &
Associates were neither expressly authorized by the plaintiffs nor permitted by
Utah law, they violated § 1692f(1) of the Act. Plaintiffs are entitled to
summary judgment on this issue.7
2. Thirty-Day Validation Period
Section 1692g requires a debt collector to inform a debtor
of his or her right to dispute the validity of a debt. 15 U.S.C. § 1692g(a).
This notice must be provided in the debt collector's initial communication with
the debtor, or within five days following the initial communication, and must
notify the debtor of the amount of the debt, the creditor to whom the debt is
owed, and that unless the validity of the debt is disputed in writing within
thirty days, the debt collector will assume that the debt is valid. Id. The [
973 F.Supp. 1329 ] validation language may not be contradicted or overshadowed
by the remainder of the letter containing the validation notice or by language
in future communications. Robinson v. Transworld Systems, Inc.,876 F.Supp. 385,
391 (N.D.N.Y.1995) (internal citations omitted). CheckRite included the
required validation notice in its first letter to plaintiffs. Likewise, the
letter sent by DeLoney & Associates contained a validation notice. Both
validation notices provided the information required by the Act; however, the
collection letter sent by DeLoney & Associates also stated that
"[n]otwithstanding your right to dispute the validity of the debt within
this thirty (30) day period, we may not delay in instituting a collection
lawsuit, except as otherwise required by the Fair Debt Collection Act."
Plaintiffs contend that this additional language violated § 1692g because,
according to plaintiffs, that provision prohibits all collection efforts until
the thirty-day validation period has passed. Defendants argue that § 1692g
simply requires that any ongoing collection efforts cease once a debtor
disputes a debt within the thirty-day period. The court agrees with defendants.
Section 1692g contains no express requirement that
collection efforts be delayed until the thirty-day period has passed. Instead,
the statute states that if the debtor disputes a debt, "the debt collector
shall cease collection of the debt." 15 U.S.C. § 1692g(b) (emphasis
added). To accept plaintiffs' reading of § 1692g would require the court to
limit the provision in a manner directly contrary to its clear and unambiguous
terms. This the court cannot do, for "absent any `indication that doing so
would frustrate Congress's clear intention or yield patent absurdity, [the
court's] obligation is to apply the statute as Congress wrote it.'"
Hubbard v. United States,514 U.S. 695, 703, 115 S.Ct. 1754, 1759, 131 L.Ed.2d
779 (1995) (quoting BFP v. Resolution Trust Corp.,511 U.S. 531, 570, 114 S.Ct.
1757, 1778, 128 L.Ed.2d 556 (1994) (Souter, J., dissenting)).
Plaintiffs also claim that the collection letter sent by
DeLoney & Associates to the Dittys violated § 1692g because the validation
notice, which appeared on the reverse side of the letter, was
"overshadowed" by language on the letter's front side.8 Plaintiffs'
argument is flawed, however, because it ignores the fact that the letter, dated
March 6, 1995, was not the "initial communication" made with the
Dittys. Rather, the "initial communication" with the Dittys was
CheckRite's January 19, 1995 letter. Section 1692g does not require another
debt collector, undertaking collection efforts after a validation notice has
been timely sent, to provide additional notice and another thirty-day
validation period. More than thirty days passed between the time CheckRite sent
its initial letter and the time DeLoney & Associates sent its letter.
Therefore, the Dittys' right to dispute the validity of the debt expired before
the DeLoney & Associates letter was sent. The validation language contained
therein was gratuitous and did not violate § 1692g.
Accordingly, defendants are granted summary judgment on
plaintiffs' claims based on § 1692g.
3. Threats and Misleading
Representations
Plaintiffs claim that defendants' use of the "covenant
not to sue" practice violated various provisions of § 1692e which make
unlawful the use of deceptive practices in the collection of debts. By
representing that they were seeking funds as a "covenant not to sue"
or "settlement offer," argue plaintiffs, defendants misrepresented
the amounts they were lawfully permitted to collect under the dishonored
instruments statute. Defendants contend that all they conveyed to plaintiffs
were offers to settle legal disputes and that public policy favors the
resolution of legal disputes short of actual litigation.
The court analyzes the challenged statements under the
"least sophisticated consumer" standard. This standard
"ensure[s] that the FDCPA protects all consumers, the gullible as well as
the shrewd." Clomon v. Jackson,988 F.2d 1314, 1318 (2d Cir.1993).
Additionally, the least sophisticated consumer standard is the most widely
accepted test used to determine whether a collection letter violates § 1692e.
Id. (listing [ 973 F.Supp. 1330 ] federal district and circuit courts that have
adopted the standard).
The collection letters sent by CheckRite did not contain any
false, misleading, or deceptive statements in violation of § 1692e. They simply
informed the debtor of the amount due, listed a $15.00 service fee, and advised
the debtor that he or she may incur additional liability in the form of
attorney fees and court costs if CheckRite referred the dishonored check to
outside counsel for litigation. The letter also estimated the debtor's
potential liability.
The letters sent by DeLoney & Associates were not
equally benign. Each letter purported to make a settlement offer comprised of
the face amount of the check, a $15.00 service charge, and a figure listed as
"Legal Consideration for Covenant Not to Sue." The letters failed to
advise debtors that the dishonored instruments statute prohibited the
collection of any amount greater than the face amount of the check, plus a
$15.00 service fee, unless a lawsuit was filed. Given this omission and
defendants' efforts to collect excessive fees under the guise of a covenant not
to sue, the court finds that no reasonable juror could conclude that
defendants' mailings did not falsely represent the amounts defendants could lawfully
collect, in violation of §§ 1692e(2)(A) & (10).
The letter sent by DeLoney & Associates to the Dittys
differed slightly from that sent to the other plaintiffs and must be considered
separately. The letter warned the Dittys not only of the possibility of a civil
action for the amount of the check but that "[o]ther actions, including
fraud in the inducement, negligent misrepresentation, civil shoplifting, or
theft by check may also be considered."9 Plaintiffs claim that these
statements violated § 1692e(5) because each constituted a "threat to take
[an] action that cannot legally be taken or that is not intended to be
taken".
At the time DeLoney & Associates sent the letter to the
Dittys, the firm had never prosecuted a claim for civil shoplifting or theft by
check. However, Richard DeLoney testified in his deposition that at the time
the Ditty letter was sent, his research led him to conclude that such actions
could be maintained. Mr. DeLoney also testified that after the Ditty letter was
sent, actions of this type were filed against certain other debtors.
Defendants maintain that the letter's statement that
"other actions ... may be considered" did not threaten legal action,
but rather advised the Ditty's, in good faith, of their potential liability.
While the letter does not explicitly state that an action will be brought
against the Dittys, a reasonable jury applying the least sophisticated consumer
standard could conclude that the letter's warning that "other actions ...
may be considered" threatened suit. See United States v. National
Financial Services, Inc.,98 F.3d 131, 137-38 (4th Cir.1996) (affirming summary
judgment for plaintiffs on claim that statements regarding possible legal
action violated §§ 1692e(5) & (10), even when creditor did not intend to
file suit), Bentley v. Great Lakes Collection Bureau,6 F.3d 60, 62 (2d
Cir.1993) (finding statement that creditors "have instructed us to proceed
with whatever legal means is necessary" could be interpreted by least
sophisticated consumer as threat of imminent suit). Nevertheless, because
Richard DeLoney's research led him to conclude that the actions listed in the
Ditty letter could be maintained and he did file such actions after mailing the
letter, and because Utah law makes the passing of bad checks a criminal offense
in some circumstances, the court concludes that there are disputed issues of
fact regarding defendants' intent in warning the Dittys of their potential
liability. The record also does not permit the court to determine as a matter
of law how the least sophisticated consumer would interpret DeLoney &
Associates' warning that other actions might be brought against plaintiffs.
Accordingly, because the letters sent to plaintiffs by
DeLoney & Associates contained false, misleading, or deceptive statements
in violation of § 1692e, plaintiffs are granted summary judgment on this issue.
However, factual issues prevent the court from determining whether additional
statements contained in DeLoney & Associates' letter to the [ 973 F.Supp.
1331 ] Dittys also violated § 1692e. Letters sent by CheckRite to plaintiffs
did not violate § 1692e; thus, CheckRite's motion for summary judgment is
granted as to plaintiffs' claim that CheckRite violated § 1692e directly.10 As
discussed more fully infra, Part III.D, CheckRite may be held vicariously
liable for violations of § 1692e committed by DeLoney & Associates.
4. Check Verification System
Plaintiffs allege that by placing plaintiffs' names on
CheckRite's check verification system, defendants: (1) made impermissible third
party communications in violation of § 1692c(b) of the FDCPA, and (2) reported
false information in violation of § 1681e(b) of the FCRA and § 1692e(8) of the
FDCPA.11
a.
Third Party Communications
Section 1692c(b) prohibits a debt collector from
communicating, "in connection with the collection of any debt, with any
person other than the consumer, his attorney, a consumer reporting agency if
otherwise permitted by law, the creditor, the attorney of the creditor, or the
attorney of the debt collector." It is undisputed that CheckRite
disseminated information regarding plaintiffs' dishonored checks to its
merchant-subscribers via its nationwide verification network. The court
concludes that these communications were undertaken, at least in part, "in
connection with" CheckRite's efforts to collect on plaintiffs' dishonored
checks. Indeed, CheckRite's first collection letter to plaintiffs warned that
"[d]ata from this check has been entered into our computer. Certain data
(in coded form) may be reported to our member merchants and may affect your
check cashing privileges. This data will be cleared upon receipt of your prompt
payment." (Emphasis added). While CheckRite may have had some legitimate
business purpose for making such communications, it is clear that the practice
was also designed to provide CheckRite with additional leverage in collecting
the debts created by plaintiffs' dishonored checks. The court also concludes
that CheckRite's subscribers were not within the class of third parties to whom
such communications may be made under § 1692c(b).
Therefore, whether CheckRite is liable under § 1692c(b)
turns on whether CheckRite itself is a "consumer reporting agency"
for purposes of its check verification activities. If so, argues CheckRite, § 1692c(b)
is not implicated by debt-related communications from CheckRite the "debt
collector" to CheckRite the "consumer reporting agency." As
discussed more fully infra, Part III.C, the record does not permit the court to
determine whether CheckRite is or is not a "consumer reporting
agency" as a matter of law.
Plaintiffs also argue that DeLoney & Associates is
liable under § 1692c(b) for the placement of plaintiffs' names on the check
verification system. In support of this contention, plaintiffs rely on the fact
that DeLoney & Associates could accept a debtor's partial payment in full
satisfaction of the covenant not to sue. Plaintiffs also point to CheckRite's
practice of not removing a particular debtor's name from the verification
system until being notified by DeLoney & Associates that the debtor's
account had settled. The court does not find these facts compelling. The record
is clear that CheckRite alone administered the verification system. CheckRite
placed names on the system, and CheckRite, in its discretion, removed names
from the system. DeLoney & Associates' role was simply to notify CheckRite
that a particular account had settled; whether the name associated with that
account was actually removed, however, was CheckRite's decision. In addition, even
if the notifications given by DeLoney & Associates to CheckRite were
considered "communications" for purposes of [ 973 F.Supp. 1332 ] §
1692c(b), such communications occurred not "in connection" with the
collection of debts, but rather after the debts had been collected.
That DeLoney & Associates incurs no direct liability
from the check verification system does not end the inquiry, for if found to be
engaged in a joint venture with CheckRite, the firm may be held liable for
unlawful third party communications committed by CheckRite. "Joint
venturers stand in the same relationship to each other as partners."
Rogers v. M.O. Bitner Co.,738 P.2d 1029, 1034 (Utah 1987) (citing Kemp v.
Murray,680 P.2d 758, 759 (Utah 1984)). Thus, principles governing liability
among partners apply. Id. Utah Code Ann. § 48-1-10 provides:
Where by any wrongful act or omission of any partner acting
in the ordinary course of the business of the partnership or with the authority
of his copartners loss or injury is caused to any person, not being a partner
in the partnership, or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting to act.
Holding DeLoney & Associates liable as CheckRite's joint
venturer would require two predicate findings: (1) that CheckRite and DeLoney
& Associates were engaged in a joint venture, and (2) that CheckRite
violated § 1692c(b) by placing plaintiffs' names on its verification system.
However, as discussed more fully supra, Part III.B.4.a, and infra, Parts III.C
& III.D.1, factual issues preclude making either finding at the summary
judgment stage.
Accordingly, because the court cannot determine, as a matter
of law, whether CheckRite was a "consumer reporting agency" or
whether DeLoney & Associates is liable for any alleged violations of §
1692c(b), summary judgment is denied on this issue.
b.
False Information
Section 1692e(8) prohibits "[c]ommunicating or threatening
to communicate to any person credit information which is known or which should
be known to be false[.]" Plaintiffs allege that defendants violated this
provision by failing to disclose to subscribes of CheckRite's verification
system that defendants had demanded from plaintiffs a fee, in the form of a
covenant not to sue, that exceeded the amount defendants were authorized to
collect under Utah law. CheckRite argues that plaintiffs have not shown that
any false information was disclosed. DeLoney & Associates maintains that it
played no role in the administration of the verification system. The court
finds that summary judgment is inappropriate on this issue because neither
plaintiffs nor defendants have presented any admissible evidence regarding the substance
of the communications allegedly made to CheckRite's subscribers. Without
knowing what "credit information," if any, was communicated to the
subscribers, the court cannot determine whether such communications were known
or should have been known to be false, in violation of § 1692e(8).
Accordingly, summary judgment is denied on this issue.
C. FCRA Claims
FCRA liability attaches to "consumer reporting
agencies" in their preparation and dissemination of "consumer
reports" and to certain "users" of such reports. DiGianni v.
Stern's,26 F.3d 346, 348 (2d Cir.), cert. denied, 513 U.S. 897, 115 S.Ct. 252,
130 L.Ed.2d 173 (1994). Plaintiffs contend that defendants are "consumer
reporting agencies" subject to the FCRA's regulations and obligations. As
used in the FCRA, a "consumer reporting agency" is:
any person which, for monetary fees, dues, or on a
cooperative nonprofit basis, regularly engages in whole or in part in the
practice of assembling or evaluating consumer credit information or other
information on consumers for the purpose of furnishing consumer reports to
third parties, and which uses any means or facility of interstate commerce for
the purpose of preparing or furnishing consumer reports.
15 U.S.C. § 1681a(f). "[T]he term refers to firms that
are in the business of assembling and evaluating consumer credit information[,]
`... a function which involves more than receipt and retransmission of
information identifying a particular debt.'" Id. at 349 (quoting D'Angelo
v. Wilmington Medical Ctr., Inc.,515 F.Supp. 1250, 1253 (D.Del. 1981)). [ 973
F.Supp. 1333 ] The little evidence in the record regarding CheckRite's
verification activities does not reveal whether CheckRite acted merely as a
conduit for debt-related information or as something more. The parties'
unsupported allegations that CheckRite was or was not a consumer reporting
agency are not sufficient to meet their respective burdens on summary judgment.
The record does reveal, however, that DeLoney &
Associates was not a "consumer reporting agency" under the FCRA.
There is no evidence that the law firm was in the business of assembling or
evaluating consumer credit information. Rather, the record indicates that the
firm simply notified CheckRite that a particular account had been settled.
Merely furnishing information about a particular debt does not draw DeLoney
& Associates within the definition of a "consumer reporting
agency" Id. at 348-49; Rush v. Macy's New York Inc.,775 F.2d 1554, 1557
(11th Cir.1985); D'Angelo, 515 F.Supp. at 1253.
Because the record at this stage does not permit the court
to determine, as a matter of law, whether CheckRite was a "consumer
reporting agency," the court denies CheckRite's and plaintiffs' motions as
they pertain to plaintiffs' FCRA claims. Because DeLoney & Associates was
not a "consumer reporting agency" as defined by the FCRA, its motion
for summary judgment is granted as to plaintiffs' FCRA claims.
D. CheckRite's
Vicarious Liability
While the FDCPA itself is silent on the issue of vicarious
liability, a debt collector may be held vicariously liable under the Act for
the conduct of its attorney. Newman v. Checkrite California, Inc.,912 F.Supp.
1354, 1370 (E.D.Cal.1995) (citing Fox v. Citicorp Credit Servs., Inc.,15 F.3d
1507, 1516 (9th Cir.1994)); see also Martinez v. Albuquerque Collection
Servs.,867 F.Supp. 1495, 1502 (D.N.M.1994); Kimber v. Federal Financial
Corp.,668 F.Supp. 1480, 1486 (M.D.Ala. 1987); 17 Am.Jur.2d, Consumer Protection
§ 200 (1990). Plaintiffs advance two theories for finding CheckRite vicariously
liable for the collection practices of DeLoney and his law firm: (1) that
CheckRite is liable as a joint venturer of DeLoney and DeLoney &
Associates, and (2) that CheckRite is liable as the principal of its agents
DeLoney and DeLoney & Associates.
1. Joint Venture
In Utah, a joint venture "is an agreement between two
or more persons ordinarily but not necessarily limited to a single transaction
for the purpose of making a profit." Bassett v. Baker,530 P.2d 1, 2 (Utah
1974). The joint venture relationship need not be created by a formal agreement
and may be proved by the parties' conduct. Rogers, 738 P.2d at 1032.
The requirements for the relationship are not exactly
defined, but certain elements are essential: The
parties must combine their property, money, effects, skill, labor and
knowledge. As a general rule, there must be a community of interest in the
performance of the common purpose, a joint proprietary interest in the subject
matter, a mutual right to control, a right to share in the profits, and unless
there is an agreement to the contrary, a duty to share in any losses which may
be sustained.
Id. Whether a joint venture exists "depends primarily
upon the facts of a particular case rather than upon adherence to specific
formalities." Strand v. Cranney,607 P.2d 295, 296 (Utah 1980), and is a
question of fact. Rogers, 738 P.2d at 1032. Here, the record does not clearly
reveal the nature of the relationship between CheckRite and DeLoney &
Associates; therefore, the court cannot determine, as a matter of law, whether
they were engaged in a joint venture.
2. Principal/Agent
It is well established that the attorney-client relationship
is one between an agent and his or her principal. McCarthy v. Recordex Service,
Inc.,80 F.3d 842, 852 (3d Cir.), cert. denied, ___ U.S. ___, 117 S.Ct. 86, 136
L.Ed.2d 42 (1996); see also United States v. 7108 West Grand Avenue,15 F.3d
632, 634 (7th Cir.), cert. denied, 512 U.S. 1212, 114 S.Ct. 2691, 129 L.Ed.2d
822 (1994) ("[t]he clients are principals, the attorney is an agent, and
under the law of agency the principal is bound by his chosen agent's
deeds"); Von Hake v. Thomas,858 P.2d 193, 195 n. 3 (Utah App.1993)
(attorney is agent [ 973 F.Supp. 1334 ] of client); Restatement (Second) of
Agency § 1 cmt. e (1958) ("the attorney-at-law ... and other similar
persons employed either for a single transaction or for a series of
transactions, are agents"). Whether a principal is responsible for the
actions of an agent, however, turns on whether the agent acted with either actual
or apparent authority. Zions First National Bank v. Clark Clinic
Corporation,762 P.2d 1090, 1094 (Utah 1988); see also Jaeger v. Western Rivers
Fly Fisher,855 F.Supp. 1217, 1220 (D.Utah 1994). Plaintiffs contend that
DeLoney and DeLoney & Associates acted with both actual and apparent
authority.
To impose liability under a theory of actual authority,
plaintiffs must demonstrate that CheckRite consented to the manner in which its
attorney-agent collected the debts owed by plaintiffs. Newman, 912 F.Supp. at
1370 (citing Restatement (Second) of Agency § 7 (1958)). Actual authority can
be either express or implied. Zions First National Bank, 762 P.2d at 1094.
Express authority exists whenever the principal directly
states that its agent has the authority to perform a particular act on the
principal's behalf. Implied authority, on the other hand, embraces authority to
do those acts which are incidental to, or are necessary, usual, and proper to
accomplish or perform, the main authority expressly delegated to the agent....
This authority may be implied from the words and conduct of the parties and the
facts and circumstances attending the transaction in question.
Id. at 1094-95. Here, while the record indicates that
CheckRite was well aware of the collection methods utilized by DeLoney and his
law firm, there is no evidence that CheckRite expressly authorized DeLoney or
DeLoney & Associates to utilize the "covenant not to sue" scheme.
Thus, no express actual authority existed.
There was, however, implied actual authority. DeLoney &
Associates and CheckRite entered into an oral contract which authorized the law
firm to collect CheckRite's delinquent accounts. Under the terms of the
contract, CheckRite and the firm shared in the proceeds of such collection efforts
— CheckRite received the face value of the check plus $20.00, DeLoney &
Associates retained the balance. Further, CheckRite knew of the collection
methods employed by DeLoney & Associates. CheckRite's Senior Vice
President, Neil Auerbach, testified in his deposition that prior to the
commencement of this suit, he had seen collection letters generated by DeLoney
& Associates containing the covenant not to sue language. In fact, Mr.
Auerbach was aware that all of the attorneys retained by CheckRite for its collection
activities, including DeLoney & Associates, utilized the "covenant not
to sue" technique in their collection efforts. That CheckRite did not
specifically manifest its consent to its attorney's use of the "covenant
not to sue" scheme is not controlling, for "[t]he manifestation of
the principal may consist of his failure to object to unauthorized
conduct." Restatement (Second) of Agency § 26 cmt. d (1958); see also
Lowder v. Holley,120 Utah. 231, 233 P.2d 350, 354 (1951) (manifestation of
consent necessary to bind principal under theory of implied authority "may
be proved by evidence of acquiescence with knowledge of the agent's acts"
(quotations and citations omitted)). CheckRite authorized DeLoney &
Associates to do its collection work and then knowingly stood by while the firm
utilized the "covenant not to sue" scheme. By its acquiescence,
CheckRite impliedly authorized the collection practices of DeLoney &
Associates and thus is liable for any violations of law caused by the firm's
use of those practices.
CheckRite is also liable for its attorney's collection
practices under the doctrine of apparent authority. "To be vicariously
liable for the acts of [its agent] under a theory of apparent authority, [the
principal] must conduct itself in such a way as to clothe its [agent] with
apparent authority to perform the [acts] committed and there must be reasonable
reliance on that apparent authority on the part of the injured party."
Jackson v. Righter,891 P.2d 1387, 1392 (Utah 1995). CheckRite effectively "clothed"
DeLoney & Associates with apparent authority to collect dishonored checks
using the "covenant not to sue" scheme. The record indicates that
CheckRite knowingly permitted DeLoney and his firm to employ the "covenant
not to sue" practice in collecting dishonored checks on CheckRite's
behalf. In addition, [ 973 F.Supp. 1335 ] CheckRite manifested its consent to
the collection practices of DeLoney and DeLoney & Associates. The second
collection letter sent by CheckRite to each plaintiff warned that "it is
[CheckRite's] practice to refer checks that remain unpaid to outside counsel
for litigation" and listed "Attorney Fees and Court Costs,"
typically in the amount of $200.00, under the heading "POTENTIAL LIABILITY
UNDER STATE LAW IF TOTAL DUE IS NOT PAID." On the heels of this letter,
plaintiffs received a letter from DeLoney & Associates informing them that
their dishonored checks had been referred to the firm by CheckRite. This letter
also advised each plaintiff that the firm had CheckRite's authority to settle
the matter in exchange for a covenant not to sue. While the acts and
representations of DeLoney & Associates were insufficient to create
apparent authority on behalf of CheckRite, see Zions First, 762 P.2d at 1095,
the letters from DeLoney & Associates reinforced CheckRite's manifestation
of consent, found in its letters, of the firm's collection practices. In short,
"by allowing [DeLoney & Associates] to identify themselves to third
parties as representatives of CheckRite, [CheckRite] has made itself responsible
for the acts of the attorneys performed in the course of that
representation." Newman, 912 F.Supp. at 1371. Acting in good faith,
plaintiffs reasonably believed that DeLoney & Associates was authorized to
collect dishonored checks on behalf of CheckRite using the "covenant not
to sue" scheme.
In an effort to avoid vicarious liability, CheckRite argues
that DeLoney & Associates was an independent contractor rather than an
agent. This may be so; however, it does not save CheckRite from liability under
principles of agency because the terms "agent" and "independent
contractor" are not mutually exclusive. To the contrary,
most of the
persons known as agents, that is, brokers, attorneys, collections agencies, and
selling agencies are independent contractors but, although employed to perform
services, are not subject to the control or right to control of the principal
with respect to their physical conduct in the performance of the services.
However, they fall within the category of agents. They are fiduciaries, they
owe to the principal the basic obligations of agency: loyalty and obedience.
McCarthy, 80 F.3d at 853 (quoting Restatement (Second) of
Agency § 14N cmt. a (1958)). DeLoney & Associates acted as CheckRite's
agent. That the law firm might also have been an independent contractor does
not relieve CheckRite of vicarious liability.
Accordingly, because CheckRite vested Richard H. DeLoney and
DeLoney & Associates with both implied actual authority and apparent
authority, the court finds that CheckRite may be held vicariously liable under
the FDCPA for the acts of Mr. DeLoney and his law firm.
E. Richard H.
DeLoney's Personal Liability
Plaintiffs advance two theories for finding Richard DeLoney
personally liable for the collection activities of his firm: (1) that DeLoney
& Associates was DeLoney's alter ego; and (2) that DeLoney was a "debt
collector" under § 1692a(6) of the FDCPA.
1. Alter Ego
Limited liability companies are designed to receive special
tax treatment and to offer their owners ("members") the type of
limited liability enjoyed by shareholders of a corporation. See Utah Limited
Liability Company Act, Utah Code Ann. §§ 48-2b-101, et seq. Just as
shareholders are generally insulated from personal liability for the
liabilities of a corporation, Colman v. Colman,743 P.2d 782, 786 (Utah
App.1987), "neither the members, the managers, nor the employees of a
limited liability company are personally liable under a judgment, decree, or
order of a court, or in any other manner, for a debt, obligation, or liability
of the limited liability company." Utah Code Ann. § 48-2b-109(1). In
limited situations, however, Utah courts will look beyond the corporate form to
find shareholders individually liable. Colman, 743 P.2d at 786. While there is
little case law discussing veil piercing theories outside the corporate
context, most commentators assume that the doctrine applies to limited
liability companies. See Karin Schwindt, Comment, Limited Liability Companies:
Issues [ 973 F.Supp. 1336 ] in Member Liability, 44 UCLA L.Rev. 1541 (1997);
Robert B. Thompson, The Limits of Liability in the New Limited Liability
Entities, 32 Wake Forest L.Rev. 1 (1997); Rachel Maizes, Limited Liability
Companies: A Critique, 70 St. John's L.Rev. 575 (1996); Eric Fox, Note, Piercing
the Veil of Limited Liability Companies, 62 Geo. Wash. L.Rev. 1143 (1994);
Wayne M. Gazur & Neil M. Goff, Assessing the Limited Liability Company, 41
Case W. Res. L.Rev. 387, 403 (1991); Robert R. Keatinge, et al. The Limited
Liability Company: A Study of the Emerging Entity, 47 Bus. Law. 375, 445
(1992); Curtis J. Braukmann, Comment, Limited Liability Companies, 39 Kan.
L.Rev. 967, 992 (1991); and Joseph P. Fonfara & Core, R. McCool, Comment,
The Wyoming Limited Liability Company: A Viable Alternative to the §
Corporation and the Limited Partnership 23 Land & Water L.Rev. 523, 525 n.
12 (1988); see also Robert G. Lang, Note, Utah's Limited Liability Company Act:
Viable Alternative or Trap for the Unwary, 1993 Utah L.Rev. 941,966 (1993)
(veil piercing doctrine likely to apply to Utah limited liability companies).
To pierce the corporate veil under the alter ego doctrine,
it must be shown that:
(1) [there
is] such a unity of interest and ownership that the separate personalities of
the corporation and the individual no longer exist, but the corporation is,
instead, the alter ego of one or a few individuals; and (2) if observed, the
corporate form would sanction a fraud, promote injustice, or result in an
inequity.
Colman, 743 P.2d at 786. Significant factors in determining
whether this test has been met include: undercapitalization of a close
corporation; failure to observe corporate formalities; siphoning of corporate
funds by the dominant shareholder; nonfunctioning of other officers or
directors; and the use of the corporation as a facade for operations of the
dominant shareholder. Id.
Plaintiffs have not produced evidence sufficient to permit a
finding, as a matter of law, that the protective veil of DeLoney &
Associates should be pierced to hold Richard DeLoney personally liable for the
firm's unlawful collection practices. Citing portions of Mr. DeLoney's
deposition, plaintiffs argue that the court should pierce the protective veil
of DeLoney & Associates because DeLoney was the sole attorney, "sole
shareholder, sole director and president of DeLoney and Associates [sic],"
Plaintiffs' Memorandum in Support of Motion for Summary Judgment, at 49 (Docket
No. 140), and because he designed the "covenant not to sue" scheme,
trained the firm's employees, and supervised the firm's collection practices.
The court disagrees. That DeLoney played an active role in the firm's business
is, at best, only marginally probative of the factors considered when
determining whether to pierce the corporate veil. Further, there is no evidence
that DeLoney & Associates was improperly organized under the Utah Limited
Liability Company Act.
2. "Debt Collector"
Liability under the FDCPA attaches only to a "debt
collector," a term defined by the Act as:
any person who uses any, instrumentality of interstate
commerce or the mails in any business the principal purpose of which is the
collection of any debts, or who regularly collects or attempts to collect,
directly or indirectly, debts owed or due or asserted to be owed or due
another.
15 U.S.C. § 1692a(6). Attorneys who regularly engage in
consumer debt collection activities are included in this definition. Heintz v.
Jenkins,514 U.S. 291, 299, 115 S.Ct. 1489, 1493, 131 L.Ed.2d 395 (1995); see
also Fox v. Citicorp Credit Services, Inc.,15 F.3d 1507, 1513 (9th Cir.1994)
(attorney is "debt collector" if regularly engaged in collection of
consumer debts); Crossley v. Lieberman,868 F.2d 566, 570 (3d Cir.1989) (same).
Both DeLoney & Associates and Richard DeLoney were "debt collectors"
under the FDCPA. Between July 1994 and May 1995, CheckRite referred to DeLoney
& Associates more than nine thousand dishonored checks written by Utah
residents, and collection work performed for CheckRite accounted for one-third
to one-half of the firm's income. Further, as the firm's sole attorney,
developer of the "covenant not to sue" practice, author of the
generic letters utilized by the firm, and supervisor of all of the firm's [ 973
F.Supp. 1337 ] collection activities, Mr. DeLoney was regularly engaged, directly
and indirectly, in the collection of debts. Thus, he may be held personally
liable under the FDCPA. See Blakemore v. Pekay,895 F.Supp. 972, 977
(N.D.Ill.1995) (liability under FDCPA attaches to individual attorney and law
firm where both met Act's definition of "debt collector"); Teng v.
Metropolitan Retail Recovery Inc.,851 F.Supp. 61, (E.D.N.Y.1994) (employee of
"debt collector" liable under FDCPA if he or she is a "debt
collector" within the statutory definition).
Mr. DeLoney maintains that simply satisfying the definition
of a "debt collector" does not trigger personal liability under the
FDCPA. Rather, argues Mr. DeLoney, personal liability attaches only if the
court may also pierce the protective veil afforded DeLoney & Associates under
Utah law. See Utah Code Ann. § 48-2b-109(1). The little case law cited by Mr.
DeLoney does not support his argument. In West v. Costen,558 F.Supp. 564
(W.D.Va.1983), the court determined that the defendant, the president and
majority shareholder of a collection agency, was a "debt collector"
under the FDCPA. Id. at 585. However, because the plaintiffs made no allegation
and presented no evidence that the defendant's own conduct violated the FDCPA,
the court concluded that he could not be held personally liable under the Act
unless the facts warranted disregarding the agency's corporate form. Id. The
case stands for the well-established proposition that absent personal
involvement with an employee's wrongful conduct, a corporate officer cannot be
held personally liable for the employee's conduct unless the facts justify
piercing the corporate veil. Id. United States v. ACB Sales & Service,
Inc.,590 F.Supp. 561 (D.Ariz.1984), also relied upon by Mr. DeLoney, simply
restates the principle articulated in West: "Generally, a corporate
[director or officer] will not be held vicariously liable, merely by virtue of
his office, for the torts of his corporation[; instead] [p]ersonal liability
must be founded upon specific acts by the individual director or officer."
Id. at 573 (internal quotations and citations omitted). Here, the record
reveals that Mr. DeLoney was intimately involved with the unlawful collection
practices of his firm. Therefore, West and ACB Sales are not on point.
Mr. DeLoney also maintains that even if he is a "debt
collector" under the FDCPA, because he is an officer and director of a
corporation,12 he may be held personally liable only for tortious acts, not
statutory violations. Simply sending settlement offers to plaintiffs, argues
DeLoney, is not tortious conduct. The court finds Mr. DeLoney's argument
unpersuasive for two reasons. First, the single case cited by Mr. DeLoney in
support of his argument, Teng, supra, explicitly undermines his position. In
Teng, the court discussed the various grounds for holding the defendants,
corporate officers of a "debt collector," personally liable for their
unlawful debt collection practices. Rather than requiring the defendants to be
both "debt collectors" under the FDCPA and tortfeasors, the court
determined that the defendants:
[were]
liable on several grounds. First, each [defendant was] himself a `debt
collector' within the statutory definition.... Second, [the defendants were]
each affirmative tortfeasors, who actually made the actionable [acts], and
would be personally liable if this was a tortious cause of action.
Id. at 67. While it is generally true that a corporate
officer or director may be held personally liable only for his or her tortious
conduct, Teng makes clear that when that officer or director is also a
"debt collector," he or she may be held personally liable for
violations of the FDCPA. Second, Mr. DeLoney mischaracterizes the nature of his
conduct: He is being sued not simply for "sending out settlement
offers," but rather for sending out misleading and threatening settlement
offers, conduct likely actionable under common law tort theories of
misrepresentation and intentional infliction of emotional distress, if not
others. Thus, even it were correct that Mr. DeLoney could be held [ 973 F.Supp.
1338 ] personally liable only for FDCPA violations that are tortious in nature,
individual liability would still attach.
Accordingly, because the court finds that Mr. DeLoney may be
held personally liable under the FDCPA as a "debt collector,"
plaintiffs' are granted summary judgment on this issue. Summary judgment is
denied on the issue of whether Mr. DeLoney may incur personal liability under a
veil piercing theory.
F. Injunctive Relief
Plaintiffs ask the court to enjoin CheckRite from disclosing
plaintiffs' names, and those of other consumers, on CheckRite's nationwide
check verification system. In response, CheckRite argues that injunctive relief
is not available for a private litigant under either the FDCPA or the FCRA.
Plaintiffs neither oppose CheckRite's argument nor provide legal authority in
support of their request for injunctive relief. Because it appears that
injunctive relief is not available to plaintiffs, CheckRite is granted summary
judgment on this issue. See Sibley v. Fulton DeKalb Collection Serv.,677 F.2d
830, 834 (11th Cir.1982) (injunctive relief not available to individual under
civil liability section of FDCPA); Mangio v. Equifax, Inc.,887 F.Supp. 283,
284-85 (S.D.Fla.1995) (private individuals may not sue for injunctive relief
under FCRA).
G. FDCPA Claims of
Plaintiffs Crandall & Robison
The FDCPA covers debts arising from transactions entered
into "primarily for personal, family, or household purposes." 15
U.S.C. § 1692a(5). See Mabe v. G.C. Services Limited Partnership,32 F.3d 86, 88
(4th Cir.1994) (FDCPA covers only "debts" incurred to receive
consumer goods or services); Bloom v. I.C. System, Inc.,972 F.2d 1067, 1069
(9th Cir.1992) (FDCPA covers "debts" arising out of consumer, not
commercial, activities). CheckRite seeks summary judgment on three of the four
claims asserted by Mark Crandall on the ground that the dishonored checks
underlying these claims did not arise from "consumer" transactions,
but instead were issued by Crandall in connection with his painting business.
Plaintiffs oppose the motion simply by arguing that Crandall's fourth claim,
predicated on a dishonored check written to purchase food for his family,
arises out a consumer transaction and is within the Act's coverage. Because
CheckRite's contentions appear to have merit, CheckRite is granted summary
judgment on those of Crandall's claims not founded on consumer transactions.
CheckRite also seeks summary judgment on the Robisons'
claims on the ground that these claims are time-barred by the Act's one-year
statute of limitations. In support of its motion, CheckRite points to Barry
Robison's deposition testimony that he and his wife were last contacted by
defendants in November 1993. In response, plaintiffs argue that the statute of
limitations was tolled because CheckRite and DeLoney & Associates concealed
their conduct through various violations of the Utah's dishonored instruments
statute. The court finds that summary judgment is not appropriate because
neither the record nor the parties' memoranda adequately address the
limitations issue. Accordingly, CheckRite's motion for summary judgment on the
Robisons' claims is denied with leave, should the parties choose, to supplement
the record and file another motion for summary judgment addressing those
claims.
IV. CONCLUSION
To summarize, the court finds as follows:
(1) A dishonored check constitutes a "debt" under
the FDCPA, and the Act's coverage extends to abusive check collection
practices;
(2) DeLoney & Associates attempted to collect excessive
fees in violation of FDCPA § 1692f(l);
(3) Defendants did not violate plaintiffs' debt validation
rights under FDCPA § 1692g;
(4) Collection letters sent to plaintiffs by CheckRite did
not contain false, misleading, or deceptive statements in violation of FDCPA §
1692e;
(5) The collection letter sent to plaintiffs by DeLoney
& Associates contained false, misleading, or deceptive statements in
violation of FDCPA § 1692e;
[ 973 F.Supp. 1339 ]
(6) Factual issues prevent the court from determining, as a
matter of law, whether warnings of possible legal action contained in DeLoney
& Associates' letter to the Ditty plaintiffs violated § 1692e(5);
(7) Factual issues prevent the court from determining, as a
matter of law, whether CheckRite made third party communications in violation
of FDCPA § 1692c(b);
(8) DeLoney & Associates did not itself make third party
communications in violation of FDCPA § 1692c(b); however, the firm may be held
liable for unlawful third party communications by CheckRite if found to be
CheckRite's joint venturer;
(9) Factual issues prevent the court from determining, as a
matter of law, whether defendants communicated false information in violation
of FDCPA § 1692e(8).
(10) Factual issues prevent the court from determining
whether CheckRite was a "consumer reporting agency" subject to the
FCRA;
(11) DeLoney & Associates was not a "consumer
reporting agency" and thus is not subject to liability under the FCRA;
(12) Factual issues prevent the court from determining, as a
matter of law, that CheckRite and DeLoney & Associates were engaged in a
joint venture;
(13) Under theories of implied actual authority and apparent
authority, CheckRite may be held vicariously liable under the FDCPA for the
abusive debt collection practices of DeLoney & Associates;
(14) Factual issues prevent the court from determining, as a
matter of law, whether it may pierce the veil of DeLoney & Associates,
L.L.C. to hold Richard H. DeLoney personally liable for the firm's abusive debt
collection practices;
(15) Richard H. DeLoney was a "debt collector" as
defined by the FDCPA and may be held personally liable for his violations of
the Act;
(16) Plaintiff's are not entitled to injunctive relief under
either the FDCPA or the FCRA;
(17) Plaintiff Crandall's claims not based on debts arising
from consumer transactions are not cognizable under the FDCPA;
(18) Factual issues prevent the court from determining, as a
matter of law, whether the FDCPA claims asserted by the Robinson plaintiffs are
time-barred.
Accordingly, as set forth above and for the reasons stated,
the parties' motions for summary judgment are hereby GRANTED in part and DENIED
in part.
Footnotes
1. The various CheckRite entities named as defendants are
collectively referred to as "CheckRite."
2. Because DeLoney & Associates was a limited liability
company at all times relevant to this litigation, all references herein to
"DeLoney & Associates" refer to DeLoney & Associates, L.L.C.
3. Plaintiffs have moved to have this case certified as a
class action, a matter pending before the United States Magistrate Judge.
Accordingly, the only plaintiffs now before the court are those named in
plaintiffs' Third Amended Complaint.
4. The parties do not move for summary judgment on the state
law claims.
5. Plaintiffs also alleged claims against John Hawks a/k/a
John Hawkes, another attorney alleged to have done collection work for
CheckRite, Robert LaMarr, DeLoney & Associates' office manager, and certain
merchants who contracted with CheckRite for check collection services. The merchant
defendants were dismissed from the action by stipulated Order. Order, May 31,
1996 (Docket No. 109). LaMarr and Hawks have never been properly served with
process pursuant to Fed.R.Civ.P. 4.
6. Plaintiffs' claims under § 1692e are addressed infra,
Part III.B.3.
7. In support of their contention that the fees charged by
defendants violated § 1692f(1), plaintiffs advance the additional argument that
the sharing of settlement proceeds by DeLoney & Associates and CheckRite was
not "permitted by law" because it violated administrative rules and
regulations that govern fee splitting between attorney and client. Because the
court finds that the fees charged by defendants violated § 1692f(1) on other
grounds, it does not reach this issue.
The court notes that the parties' discussion of Utah's
dishonored instruments statute occurs only in the context of the FDCPA. No
party has moved for summary judgment on plaintiffs' ninth cause of action,
entitled "Violation of Utah Code Ann. § 7-15-1." Third Amended
Complaint, ¶¶ 180-189 (Docket No. 98). Accordingly, the court does not reach
this claim.
8. The letters sent to the other plaintiffs displayed the
validation notice on the front side.
9. These causes are not expressly actionable under Utah law.
However, knowingly passing a bad check is a criminal offense. Utah Code Ann. §
76-6-505 (1995).
10. In their motions for summary judgment, the parties raise
the issue of whether a merchant, Beehive Pizza, d/b/a Dominos Pizza, refused to
authorize CheckRite to bring suit on dishonored checks. At oral argument, it
appeared that plaintiffs' claim that Beehive had refused to give such
authorization resulted from an oversight in the discovery process. Accordingly,
the court will not reach this issue.
11. Plaintiffs have not alleged that the statement contained
in CheckRite's first collection letter that "[c]ertain data (in coded
form) may be reported to our member merchants," or the statement contained
in DeLoney & Associates' collection letter that upon payment of the
settlement amount, "we will notify CheckRite to remove your bank account
data from their nation-wide [sic] verification network" violated §
1692e(5).
12. The court again notes that during the relevant period,
DeLoney & Associates was a limited liability company organized under Utah
law, not a professional corporation. For purposes of this analysis, however,
the court assumes that Mr. DeLoney's argument applies with equal force to
managers of a limited liability company.