News & Resources

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 01-3487

CHAD SCHLOSSER and FRANCES SCHLOSSER

Plaintiffs-Appellant,

v.

FAIRBANKS CAPITAL CORP.

Defendants-Appellee.

Appeal from the United States District Court for the

Central District of Illinois, Urbana Division

The Honorable Michael P. McCuskey

2:01cv02121

BRIEF OF APPELLANT

CHAD SCHLOSSER and FRANCES SCHLOSSER

Daniel A. Edelman

Cathleen M. Combs

James O. Latturner

Adela C. Lucchesi

EDELMAN, COMBS, LATTURNER, & GOODWIN, LLC

120 South LaSalle Street, 18th Floor

Chicago, Illinois 60603

(312) 739-4200

(312) 419-0379 (FAX)

CIRCUIT RULE 26.1 DISCLOSURE STATEMENT

Appellate Court No: 01-3487

Short Caption: Chad Schlosser and Frances Schlosser v. Fairbanks Capital Corp.

To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a nongovernmental

party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure

statement stating the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1. Each

attorney is asked to complete and file a Disclosure Statement with the Clerk of the Court as soon after the appeal

is docketed in this Court as possible. Counsel is required to complete the entire statement and to use N/A for

any information that is not applicable.

1. The full name of every party that the attorney represents in the case (if the party is a corporation, you must

provide the corporate disclosure information required by Fed. R. App. P. 26.1 by completing the item #2):

Chad Schlosser and Frances Schlosser

(2) The names of all law firms whose partners or associates have appeared for the party in the case (including

proceedings in the district court or before an administrative agency) or are expected to appear for the party

in this court:

Edelman, Combs, Latturner & Goodwin, LLC

(3) If such party or amicus is a corporation, list:

(i) Identify all its parent corporations, if any; and

(ii) list any publicly held company that owns 10% or more of the party’s or amicus’ stock:

N/A

The Court prefers the statement to be filed immediately following docketing; but the disclosure statement must

be filed with the principal brief or upon the filing of a motion, response, petition, or answer in this court, whichever

occurs first. The attorney furnishing the statement must file an amended statement to reflect any material changes in

the required information. The text of the statement (i.e. caption omitted) shall also be included in front of the table

of contents of the party’s main brief.

Attorney’s Signature: Date:

Attorney’s Printed Name: Adela C. Lucchesi

Address: 120 S. LaSalle, 18th Floor, Chicago, IL 60603

Phone Number: 312/739-4200

Fax Number: 312/419-0379

E-Mail Address: edcombs@aol.com

rev. 9/99 AK

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TABLE OF CONTENTS

CIRCUIT RULE 26.1 DISCLOSURE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

JURISDICTIONAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ISSUE PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A NATURE OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

B. PROCEEDING BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

I. STANDARD OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

II. THE DISTRICT COURT ERRONEOUSLY DISREGARDED EXPRESS

STATUTORY DEFINITIONS IN DETERMINING THE "PLAIN

MEETING"

OF THE FDCPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A. WHEN THE DEFINITIONS OF "DEBT" AND "CONSUMER"ARE

INSERTED IN § 1692A(F)(iii), IT IS CLEAR THAT THE FDCPA

ALLEGES TO A DEBT WHICH THE COLLECTOR BELIEVES OR

CLAIMS TO BE IN DEFAULT WHEN IT IS ACQUIRED, EVEN IF

THE CLAIM IS UNFOUNDED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

B. THE FDCPA WAS INTENDED TO PROTECT THE CONSUMER

WHO IS WRONGFULLY ACCUSED OF BEING A DELINQUENT

DEBTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

C. THE DISTRICT COURT MISCONSTRUED THIS COURTS BAILEY

DECISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

D. OTHER DISTRICT COURT DECISIONS WHICH DO ADDRESS

THE ISSUE PRESENTED HERE HOLD THAT THE FDCPA

APPLIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

STATEMENT PURSUANT TO CIRCUIT RULE 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

TYPE VOLUME CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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REQUIRED SHORT APPENDIX, INDEX TO SHORT APPENDIX . . . . . . . . . . . . . . . . . . . 19

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

TABLE OF AUTHORITIES

Cases

Albright v. Oliver, 510 U.S. 266, 269 (1994), reh’g denied, 510 U.S. 1215 (1994) . . . . . . . . . . 7

Bailey v. Security National Servicing Corp., 154 F.3d 384 . . . . . . . . . . . . . . . . . . . . . . . . 13-14

Baker v. G.C. Services Corp., 677 F.2d 775, 777 (9th Cir. 1982) . . . . . . . . . . . . . . . . . . . 12,13

Bangerter v. Orem City Corp., 46 F.3d 1491, 1502 (10th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . 7

Beattie v. D.M. Collections, Inc., 754 F.Supp. 383, 390 (D. Del. 1991) . . . . . . . . . . . . . . . . . . 12

Benjamin v. Jacobson, 172 F.3d 144, 155 (2d Cir. 1999) (en banc) . . . . . . . . . . . . . . . . . . . . . . 9

Conley v. Gibson, 355 U.S. 41, 45-46 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Gustafson v. Alloyd Co., 513 U.S. 561, 574 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Johnson v. Statewide Collections, Inc., 778 P.2d 93, 99 (Wyo. Sup. Ct. 1989) . . . . . . 12, 16, 17

Mace v. Van Ru Credit Corp., 109 F.3d 338, 341 (7th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . 12

Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000) . . . . . . . . . . 7

McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992). . . . . . . . . . . . . . . . . . . . . . . . . 12

Meese v. Keene, 481 U.S. 465, 484 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Porter v. DiBlasio, 93 F.3d 301, 305 (7th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Rabideau v. Management Adjustment Bureau, 805 F.Supp. 1086, 1092 (W.D. N.Y. 1992) . . . 12

Roots Partnership v. Lands’ End, Inc., 965 F.2d 1411, 1416 (7th Cir. 1992) . . . . . . . . . . . . . . . 7

Rothner v. Chicago, 929 F.2d 297, 302 (7th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Salgado v. Harvard Collection Services, Inc., 01 C 2572, 2001 WL 803683 (N.D.Ill.) . . . . 15, 17

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Balint, 201 F.3d 928 (7th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

United States v. Heirs of Boisdore, 49 U.S. 113, 122 (1850) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37-38 & n.9 (1952) . . . . . . . . . . 14

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United States v. Morton, 467 U.S. 822, 828 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Villarreal v. Snow, 95 C 2484, 1996 WL 28308 (N.D.Ill.) . . . . . . . . . . . . . . . . . . . . . . . . . 16, 18

Weinberg v. Arcventures, Inc., 96 C 556, 1996 WL 385951 (N.D. Ill.) . . . . . . . . . . . . . . . 16, 17

Wenrich v. Cole, 2001 WL 4994 (E.D.Pa., Dec. 22, 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Whitaker v. Ameritech Corp., 129 F.3d 952 (7th Cir). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-15

Statues, Rules, Constitutional Provisions and Legislative History

15 U.S.C. §1692 et seq. ("FDCPA") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

15 U.S.C. §1692g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

28 U.S.C. § 1331 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

15 U.S.C. § 1692k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1291 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

15 U.S.C. § 1692e(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

15 U.S.C. § 1692a(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

15 U.S.C. § 1692a(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

15 U.S.C. § 1692a(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

15 U.S.C. § 1692a(6)(F)(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . et seq.

15 U.S.C. § 1692a(6)(F) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,10

15 U.S.C. § 1692e(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

15 U.S.C. § 1692g(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

15 U.S.C. § 1692k(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

House Report 95-131, 95th Cong., 1st Sess., page 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Senate Report No. 95-382, p.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,12

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JURISDICTIONAL STATEMENT

This case was brought pursuant to the Fair Debt Collection Practices Act, 15 U.S.C.

§1692 et seq. ("FDCPA"). Plaintiffs, Chad Schlosser and Frances Schlosser ("Schlossers"), alleged

that Fairbanks Capital Corporation ("Fairbanks") is a debt collector as defined in the FDCPA with

respect to all 12,800 loans which it acquired from ContiMortgage that Fairbanks claimed to be

delinquent at the time of the acquisition, August 1, 2000. The Schlossers further alleged that

Fairbanks had failed to comply with the debt verification provision of the FDCPA, 15 U.S.C. §1692g,

and that the noncompliance had resulted in the wrongful filing of a mortgage foreclosure action

against them.

The United States District Court for the Central District of Illinois had jurisdiction

over this case under 28 U.S.C. § 1331 (general federal question), 28 U.S.C. § 1337 (interstate

commerce) and 15 U.S.C. § 1692k (FDCPA).

On August 31, 2001, the District Court for the Central District of Illinois entered a

final order dismissing the Schlossers’ amended complaint.

On September 20, 2001, the Schlossers filed their Notice of Appeal. The United

States Court of Appeals for the Seventh Circuit has jurisdiction pursuant to 28 U.S.C. § 1291.

ISSUE PRESENTED

Whether an entity which regularly acquires and seeks to collect delinquent debts is

outside the coverage of the FDCPA with respect to a consumer who it wrongfully accused of

owing a delinquent debt.

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STATEMENT OF THE CASE

A. Nature of the Case

The Schlossers obtained a mortgage from ContiMortgage, which was subsequently

acquired by Fairbanks. When Fairbanks obtained the Schlossers’ loan, their mortgage was allegedly

in default. The Schlossers’ account was obtained by Fairbanks along with over 12,000 other

supposedly delinquent accounts. Fairbanks believed that the Schlossers’ mortgage was in default,

which is evidenced by the demand letter for payment it sent to the Schlossers on August 23, 2000.

Furthermore, when the Schlossers attempted to pay Fairbanks their December mortgage payment,

it was rejected because their account was in default according to Fairbanks.

The Schlossers filed a class action complaint against Fairbanks alleging that Fairbanks

violated the FDCPA for failure to give adequate consumer notice under 15 U.S.C. § 1692g. Count

II of the Schlossers amended complaint was an individual Illinois Consumer Fraud Act ("ICFA")

claim alleging that Fairbanks’ practices were unfair and deceptive by unnecessarily declaring the

Schlossers in default, accelerating their loan and foreclosing on them.

B. Proceeding Below

On July 16, 2001, Fairbanks moved to dismiss the Schlossers’ amended complaint

on the grounds that (1) Fairbanks was not a debt collector as defined by the FDCPA; (2) it did not

violate the FDCPA and (3) the Schlossers could not maintain a cause of action under the Illinois

Consumer Fraud Act. (R. 7 & 8).

On August 31, 2001, the Central District of Illinois entered a final order dismissing

the Schlossers’ amended complaint, holding that Fairbanks was not a debt collector as defined by

the FDCPA with respect to the Schlossers’ loan. The District Court declined to rule on whether

Fairbanks violated the FDCPA if it was determined to be a debt collector or on whether the

Schlossers could maintain a claim under the Illinois Consumer Fraud Act.

Plaintiffs appeal from the district court’s decision granting Fairbanks’ motion to

dismiss because it was not a debt collector as defined under the FDCPA.

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STATEMENT OF FACTS

Effective August 1, 2000, Fairbanks acquired at least 12,800 allegedly delinquent

"subprime" high interest mortgages from a defunct lender, ContiMortgage. Fairbanks intended to

collect the allegedly delinquent loans. (R. 3, pg. 2, ¶7). The Schlossers’ loan was one of the 12,800.

On November 13, 1997, the Schlossers had obtained a $36,000 mortgage loan for

personal, family or household purposes, namely refinancing of existing personal debts. (R. 3,pg. 2,

¶9, Ex. A; R. 8, pg. 2). Effective August 1, 2000, the loan was acquired by Fairbanks. (R. 3, pg.

2-3, ¶10, R. 8, pg. 2). At that time, the loan file showed that the Schlossers’ mortgage loan was

delinquent or in default. (R. 3, pg. 3, ¶11, Ex. B, R. 8, pg. 2).

Three weeks later, Fairbanks sent a demand letter to plaintiffs asserting that plaintiffs

were in default on their mortgage, which was its first communication with the Schlossers. (R. 3,

pg. 3, ¶12, Ex. C, R. 8, pg. 2-3). The demand letter stated:

DEMAND LETTER - YOU COULD LOSE YOUR HOME! . . . . This letter

constitutes formal notice of default under the terms of the Note and Deed of Trust or

Mortgage because of failure to make payments required. . . .

This letter is a formal demand to pay the amounts due. In the event that these sums

are not paid to Fairbanks Capital Corp. "Fairbanks" within 30 days of this letter the

entire unpaid balance, together with accrued interest, legal fees and expenses, WILL

BE ACCELERATED and foreclosure proceeding will be instituted. You have the

right to reinstate the loan, even after acceleration, if on or before the reinstatement

period ends, you do the following:

1. Pay Fairbanks all installment and late charges due on your loan.

2. Pay all reasonable expenses, including, but not limited to attorneys’ fees, trustee’s

fees and expenses Fairbanks has incurred in enforcing its remedies.

3. Cure all breaches of any other covenants or agreements made by you in the Note,

Deed of Trust or Mortgage.

4. Pay any fees required under the terms of your Note and Deed of Trust or

Mortgage.

5. Take such action which Fairbanks may reasonably require to assure that its lien

and interest in the property is protected.

You have the right to bring a court action if you claim that the loan is not in default

or if you believe that you have any other defense to the acceleration and sale. . . .

This letter is from a debt collector and is an attempt to collect a debt. Any

information obtained will be used for that purpose. (R. 3, pg. 3, ¶11, Ex. B, R. 8, pg.

2).

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The Schlossers complain that the August 22, 2000 letter did not comply with the debt

verification provision of the FDCPA, 15 U.S.C. §1692g. Specifically, instead of informing the

Schlossers that they could dispute their alleged default status by letter, in which case Fairbanks would

be required to undertake to verify that they really were in default (and cease collection activities until

that was done), the letter said "You have the right to bring a court action if you claim that the loan

is not in default." This (i) shifts the burden of determining the status of the debt from the collector

to the consumer and (ii) imposes a much more severe burden on the consumer (filing a court action

as opposed to writing a letter) than § 1692g contemplates.

In addition, the August 22, 2000 letter did not state the amount of the debt as required

by 15 U.S.C. §1692g. The dollar amount referred to, $1,173.64, is not the total amount owed by

plaintiffs in August 2000.

The August 22, 2000 letter did contain the § 1692e(11) warning, "This letter was from

a debt collector and is an attempt to collect a debt." Thus, Fairbanks understood that it was subject

to the FDCPA and had to comply with the statute.

On December 11, 2000, Fairbanks, still maintaining the Schlossers were in default,

refused to accept a regular payment from plaintiffs. The letter returning the check stated:

Enclosed is your check Number 3455747609 in the amount of $344.00 which we

cannot accept at this time. Your account is currently in default status and this

payment was less than the full amount due.

Please contact our office at 1-888-818-6032 for the amount to bring your loan

current. . . .

This letter is from a debt collector and is an attempt to collect a debt. Any

information obtained will be used for that purpose. (R. 3, pg. 3, ¶14, Ex. D).

On December 14, 2000, a foreclosure action was commenced against plaintiffs in the

Circuit Court of Macon County, Illinois, by Fairbanks’ principal, Manufacturers & Traders Trust

Company, Trustee for Securitization 1997-5, Agreement Dated 12-01-97. (R. 3, pg. 3, ¶15, R. 8,

pg. 2).

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In December 2000, the Schlossers faxed two letters to Fairbanks complaining that

they were not in default. (R. 3, pg. 3, ¶16, Ex. E). Nothing happened. In February 2001, plaintiffs

faxed a letter to Fairbanks’ foreclosure attorney again complaining that they were not in default. (R.

3, pg. 3-4, ¶17, Ex. F). Apparently in response, on February 22, 2001, the foreclosure action was

dismissed. (R. 3, pg. 4, ¶19).

The Schlossers contended that they were not actually in default, and that Fairbanks

did not provide proper notice of their verification rights under 15 U.S.C. §1692g. They further

contended that the FDCPA covers an entity, such as Fairbanks, which as part of its regular business

activities purchases large blocks of assertedly delinquent debts for the purpose of collecting them,

even if the assertion of delinquency is incorrect in a particular case.

Fairbanks argued that since the Schlossers’ debt was not actually delinquent, the

FDCPA did not protect the Schlossers. Fairbanks did not dispute that it was a debt collector with

respect to the other 12,799-odd loans it acquired which were in fact delinquent or that it believed the

Schlossers were in default and it was attempting to collect a debt it believed was in default.

The District Court agreed with Fairbanks.

SUMMARY OF ARGUMENT

The District Court’s holding turns the FDCPA on its head. FDCPA actions are often

criticized as attempts by people who really owe money to raise technical deficiencies in the collection

process which didn’t cause actual harm. Here, the Schlossers were not delinquent debtors, but were

wrongfully treated as such by Fairbanks, with the result that their lives have been disrupted and their

credit utterly ruined by an unfounded foreclosure action. Fairbanks sent the Schlossers a default

notice, refused to accept valid payments because it incorrectly maintained that the Schlossers were

in default, and filed a foreclosure action which will besmirch their credit for the next 7 years.

Furthermore, the FDCPA violation alleged – failing to inform the consumers that if

they merely write a letter to the debt collector disputing the default the debt collector must undertake

to verify that the loan really is in default–is one that bears a direct relationship to the harm complained

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of – wrongfully filing a foreclosure suit on a loan which is not in default. Instead, Fairbanks told the

Schlossers that they had to "bring a court action if you claim that the loan is not in default. . . ." This

is precisely the type of case that Congress intended to address when it enacted §1692g.

The District Court unreasonably held that the FDCPA only protects people who

actually are delinquent debtors, and not people such as the Schlossers who are wrongfully accused

of being delinquent debtors.

The District Court erred by ignoring the statutory definitions, which incorporate

Congress’ clearly stated intent to protect persons who are wrongfully accused of being delinquent

debtors as well as actual delinquent debtors. The statutory definitions make it quite clear that persons

wrongfully accused of being delinquent debtors – either because they are the wrong person or are not

delinquent – are protected by the FDCPA. Section 1692a(5) defines a "debt" as "any obligation or

alleged obligation of a consumer to pay money," which covers situations where the collector goes

after the wrong person, or goes after the correct debtor but wrongly alleges that the debt is

delinquent. The definition of "debt collector" in § 1692a(6) similarly includes one 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). Finally, a "consumer" is "any natural person obligated or allegedly

obligated to pay any debt." 15 U.S.C. §1692a(3).

Fairbanks clearly asserted and alleged that plaintiffs were delinquent debtors at the

time it acquired their loan, by sending them a default letter immediately thereafter and then

foreclosing on them. Thus, the District Court held that the FDCPA did not protect the one group

most in need of its protections – persons who are wrongly accused of being delinquent debtors.

Thus, if (1) the collector asserts or alleges that the consumer is a delinquent debtor,

(2) this situation existed when the collector first received the purported debt, and (3) the collector

regularly collects delinquent debts, the FDCPA applies. The fact that the assertion or allegation that

the consumer was a delinquent debtor is false is a reason for affording the protection of the FDCPA,

not for denying it. Indeed, multiple provisions of the FDCPA on their face protect people against

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wrongful assertions that they are delinquent debtors, and the legislative history of the FDCPA makes

clear that it protects people against wrongful assertions that they are delinquent debtors.

ARGUMENT

I. STANDARD OF REVIEW

The Court reviews the District Court’s decision de novo, "accepting the well-pleaded

allegations in the complaint as true and drawing all reasonable inferences in favor of the plaintiff."

Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000), citing Porter v.

DiBlasio, 93 F.3d 301, 305 (7th Cir. 1996). "Dismissal . . . is proper only where the plaintiff can

prove no set of facts that would entitle him to relief." Id., citing Conley v. Gibson, 355 U.S. 41, 45-

46 (1957).

Facts alleged by the plaintiff are assumed to be true. Roots Partnership v. Lands’ End,

Inc., 965 F.2d 1411, 1416 (7th Cir. 1992). Rule 12(b)(6) motions are disfavored and are not granted

routinely due to the liberal "notice pleading" requirements recognized by the Federal Rules.

Bangerter v. Orem City Corp., 46 F.3d 1491, 1502 (10th Cir. 1995) (dismissal is a "harsh remedy

which must be cautiously studied"); Rothner v. Chicago, 929 F.2d 297, 302 (7th Cir. 1991). The

Court must presume all well-pleaded facts in plaintiff’s complaint to be true, resolve all doubts and

inferences in the plaintiff’s favor, and view the complaint in the light most favorable to the plaintiff.

Albright v. Oliver, 510 U.S. 266, 269, 114 S.Ct. 807, 810 (1994), reh’g denied, 510 U.S. 1215, 114

S.Ct. 1340 (1994); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686 (1974).

II. THE DISTRICT COURT ERRONEOUSLY DISREGARDED

EXPRESS STATUTORY DEFINITIONS IN

DETERMINING THE "PLAIN MEANING" OF THE FDCPA.

Section 1692a(6)generally defines a "debt collector" as: "any person . . . who collects

or attempts to collect . . . debts owed or due or asserted to be owed or due another." Under this

definition Fairbanks is a debt collector because it was attempting to collect a debt allegedly due to

ContiMortgage. However, section 1692a(6)(F)(iii) excludes from this definition of debt collector any

debt collecting activity which "concerns a debt which was not in default at the time it was obtained

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by" the collector (R.21, pg. 4).

The District Court stated that the language of §1692a(6)(F)(iii) was plain on its face

and limited application of the FDCPA to debts that were actually in default when obtained by the

putative collector. The District Court erred. While the courts must follow the "plain meaning" of

statutory language, the statutory language includes any express definitions of the terms used. The

language of § 1692a(6)(F)(iii) cannot be read shorn of the immediately adjacent definitions, which

provides that "debt" includes "alleged" and "asserted" delinquent obligations as well as those which

actually are delinquent.

Further, statutes must be read as a whole, and multiple sections of the FDCPA make

no sense unless the FDCPA applies to cases where consumers are falsely alleged to be delinquent

debtors. A statute may not be construed so that substantial portions are rendered superfluous or

meaningless. Gustafson v. Alloyd Co., 513 U.S. 561, 574, 115 S.Ct. 1061 (1995).

When read as a whole, and using the statutory definitions, the FDCPA either clearly

covers cases where consumers are falsely alleged to be delinquent debtors, or is ambiguous. If

ambiguous, the legislative history may be consulted. The Senate and House reports explaining the

FDCPA to Congress expressly state that it covers cases where consumers are falsely alleged to be

delinquent debtors.

A. WHEN THE DEFINITIONS OF "DEBT" AND "CONSUMER"

ARE INSERTED IN §1692a(F)(iii), IT IS CLEAR THAT THE

FDCPA APPLIES TO A DEBT WHICH THE COLLECTOR

BELIEVES OR CLAIMS TO BE IN DEFAULT WHEN IT IS

ACQUIRED, EVEN IF THE CLAIM IS UNFOUNDED.

The FDCPA effectuates its objective of protecting the consumer who is wrongfully

accused of being a delinquent debtor through its definitions. Section 1692a(5) defines "debt" to mean

"any obligation or alleged obligation of a consumer to pay money." The introductory sentences of

§1692a(6) defines "debt collector" as one who "regularly collects or attempts to collect, directly or

indirectly, debts owed or due or asserted to be owed or due another." Finally, §1692a(3) defines

"consumer" as "any natural person obligated or allegedly obligated to pay any debt." These

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definitions clearly express Congress’ intent to afford protection to a consumer who does not in fact

owe a delinquent debt, but is wrongfully treated by a debt collector as if he did, either because the

debt collector is dunning the wrong person or because the correct consumer is not delinquent.

The District Court reached a contrary result by reading the phrase in §1692a(6)(F)(iii),

"a debt which was not in default at the time it was obtained by such person," in isolation and without

reference to (a) the definition of "debt" as including an "alleged" obligation as well as an actual one,

(b) the basic definition of "debt collector" as including one who collects "asserted" obligations as well

as obligations that in fact exist, and (c) the introductory language in §1692a(6)(F), referring to "any

debt owed or due or asserted to be owed or due . . . ." (R.21, pg. 4). It is not proper to consider

the "meaning" of one phrase in a statute without the context provided by adjacent provisions. United

States v. Morton, 467 U.S. 822, 828, 104 S.Ct. 2769, 2773 (1984). "[O]ur interpretations is guided

not just by a single sentence or sentence fragment, but by the language of the whole law, and its

object and policy." United States v. Balint, 201 F.3d 928 (7th Cir. 2000), citing United States v. Heirs

of Boisdore, 49 U.S. 113 (1850).

While laypersons might not consider a "debt" to include an alleged obligation which

does not in fact exist, Congress has the right to define statutory terms in a manner that depart from

their lay meaning. Meese v. Keene, 481 U.S. 465, 484, 107 S.Ct. 1862, 1873 (1987). Such

definitions control the use of the defined terms whenever they appear. Benjamin v. Jacobson, 172

F.3d 144, 155 (2d Cir. 1999) (en banc).

In this case, Congress expressly defined "debt" to include "alleged" obligations to pay

money which do not in fact exist, and "debt collector" to include those who attempt to collect

"asserted" obligations which do not in fact exist.

When the concept of "alleged" or "asserted," which the statutory definitions of "debt,"

"consumer" and "debt collector" incorporate, is included in §1692a(6)(F)(iii), one necessarily reaches

a conclusion opposite from that of the District Court. The language of §1692a(6)(F)(iii) becomes:

"a[n] obligation or alleged obligation of [a] natural person obligated or allegedly obligated to pay

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money which was not in default at the time it was obtained by such person." (R.21, pg. 4). In other

words, the phrase "debt which was not in default" must be read as "debt which was not in default,

actually or allegedly" or "an alleged debt that was not in default."

It is undisputed that Fairbanks thought that the Schlossers’ debt was in default at the

time Fairbanks acquired it. Fairbanks sent plaintiffs a "default notice" threatening foreclosure, and

included the § 1692e(11) warning in its notice. Moreover, Fairbanks returned the Schlossers’

December 2000 mortgage payment of $344.00 because their account was in "default status." Thus,

the alleged debt was in default when Fairbanks assumed it.

At the very least, the statutory language does not plainly exclude application of the

FDCPA to a false claim that the consumer is in default, but is ambiguous as applied to this situation.

Because the definitions of "debt" and "consumer" each refer to the other, direct interpolation into

§1692a(6)(F)(iii) of the definitional language "any obligation or alleged obligation of a consumer to

pay money" for "debt" (§1692a(5)) and "any natural person obligated or allegedly obligated to pay

any debt" for "consumer" (§1692a(3)) is grammatically awkward, requiring interpretation to

determine whether Congress meant the words "alleged" and "allegedly" to modify "default."

Reference to the legislative history is then permissible to clarify the meaning. As discussed below,

the legislative history expressly states that Congress meant to cover situations where consumers were

wrongfully accused of being delinquent debtors.

Furthermore, a review of the FDCPA discloses that many of its substantive provisions

are meaningless unless the FDCPA applies to situations where consumers were wrongfully accused

of being delinquent debtors. These include:

1. The debt verification provision, §1692g which permits the consumer to notify

the debt collector that the debt is disputed, in which case the debt collector must cease collection

efforts until it obtains and provides verification of the debt. Unless the FDCPA as a whole applies

to cases where consumers are wrongfully accused of being delinquent debtors, Congress authorized

a debtor who in fact owes the money to falsely inform the debt collector that he disputes the debt and

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thereby force the collector to desist from the collection of a valid debt until some meaningless

paperwork is furnished. On the other hand, a consumer who rightfully denied the debt would not

be protected, because the debtor’s claim that the debt was not actually owed at the time the collector

became involved with it would take the debt outside the coverage of the FDCPA altogether.

2. Section 1692e(8) makes unlawful "Communicating or threatening to

communicate to any person credit information which is known or which should be known to be false,

including the failure to communicate that a disputed debt is disputed." If the FDCPA as a whole only

applies where the debtor actually owes the money, this section requires debt collectors to report to

credit bureaus false denials of the debt by the consumer.

The FDCPA cannot be construed so that these provisions serve no rational purpose.

The only way in which they serve a rational purpose is if the FDCPA applies to cases where the

debtor rightfully disputes the debt.

In short, as long as the collector claims or alleges or asserts that the debt was owed

by the consumer and in default when the collector first acquired it, the FDCPA applies, even if the

claim is incorrect. Here, Fairbanks claimed that plaintiffs were in default on their mortgage when

Fairbanks acquired the debt, and that establishes the applicability of the FDCPA.

B. THE FDCPA WAS INTENDED TO PROTECT THE CONSUMER WHO IS

WRONGFULLY ACCUSED OF BEING A DELINQUENT DEBTOR.

The FDCPA was carefully designed to protect the innocent as well as the guilty. If

the collector duns someone who is paying his debts as agreed, or simply goes after the wrong person,

and violates the FDCPA in the process, the victim of the improper collection effort is not deprived

of the protection of the FDCPA.

The legislative history of the FDCPA leaves no doubt that the erroneous collection

of debts was meant to be covered. Senate Report No. 95-382, p. 4, reprinted at 1997 USCCAN

1695, 1699, in discussing the verification notice requirement, §1692g – the provision allegedly

violated in this case – states that "[t]his provision will eliminate the recurring problem of debt

collectors dunning the wrong person or attempting to collect debts which the consumer has already

12

paid." Thus, a collector who goes after the wrong person, or who duns the correct person for a debt

which is not delinquent, is covered.

Similarly, House Report 95-131, 95th Cong., 1st Sess., p. 8, states:

This bill also protects people who do not owe money at all. In the collector’s zeal,

collection effort are often aimed at the wrong person either because of mistaken

identity or mistaken facts. This bill will make collectors behave responsibly towards

people with whom they deal . . . .

"Congress designed the FDCPA and in particular 1692g(a), to ‘eliminate the recurring

problem of debt collectors dunning the wrong person or attempting to collect debts which the

consumer has already paid.’" Beattie v. D.M. Collections, Inc., 754 F.Supp. 383, 390 (D. Del. 1991),

quoting S.Rep. No. 382, 95th Cong., 1st Sess. 4 reprinted in 1977 U.S.Code Cong. & Admin.News

1695, 1699; accord, Rabideau v. Management Adjustment Bureau, 805 F.Supp. 1086, 1092 (W.D.

N.Y. 1992) (legislative purpose is to eliminate abusive, deceptive and unfair debt collection practices

including misrepresentation). "Federal courts interpret Section 1692k(a) as a broad grant available

to persons who are not obligated or allegedly obligated to pay the debt that the defendant sought to

collect." Wenrich v. Cole, 2001 WL 4994 (E.D.Pa., Dec. 22, 2000).

This and other courts have repeatedly stated that the FDCPA is "designed to protect

consumers who have been victimized by unscrupulous debt collectors, regardless of whether a valid

debt actually exists." Baker v. G.C. Services Corp., 677 F.2d 775, 777 (9th Cir. 1982); Mace v. Van

Ru Credit Corp., 109 F.3d 338, 341 (7th Cir. 1997); McCartney v. First City Bank, 970 F.2d 45, 47

(5th Cir. 1992). Thus, "standing is afforded an aggrieved consumer to proceed under the act as

long as the collector was purporting to attempt to collect an alleged debt." Johnson v. Statewide

Collections, Inc., 778 P.2d 93, 99 (Wyo. Sup. Ct. 1989).

"Further, the legislative history supports the contention that a debtor has standing to

complain of violation of the Act, regardless of whether a valid debt exists. Representative Frank

Annunzio, chairman of the subcommittee that reported out the bill, stated during debate ‘[t]hat every

individual, whether or not he owes the debt, has a right to be treated in a reasonable and civil

manner.’" Baker v. G.C. Services Corp., 677 F.2d 775, 777 (9th Cir. 1982), citing 123 Cong.Rec.

13

10241 (1977).

What occurred in this case is the precise situation envisaged by Congress – the debt

collector was attempting to collect a debt that had been paid, erroneously claiming that it was

delinquent. However, instead of properly advising the debtors of their § 1692g right to dispute the

debt, Fairbanks told them that if they wanted to contest the debt they had to file a lawsuit in which

they would have to prove that their debt was not delinquent.

C. THE DISTRICT COURT MISCONSTRUED

THIS COURT’S BAILEY DECISION.

The District Court relied primarily on this Court’s decision in Bailey v. Security

National Servicing Corp., 154 F.3d 384 (7th Cir. 1998). Bailey is not on point, because the debt

involved in that case was not treated as being in default by the defendant at the time the defendant

first became involved with it. Bailey’s language and reasoning support the Schlossers’ position, not

Fairbanks’.

In Bailey, the debtors had once been delinquent, but had renegotiated the terms of

their home mortgage with HUD. 154 F.3d at 386. The forbearance agreement suspended their

delinquency status. Id. The loan was then sold by HUD to a private investor, which hired the

defendant Security National Servicing to service the loan. Id. Security National sent the debtors a

letter informing them of the next four payments due, the earliest of which was due a week in the

future. The letter did not assert that the debtors were in default; indeed, "both parties agree [the

forbearance agreement] was not in arrears at the time the defendants obtained it (and obviously not

in default)." 154 F.3d at 388. The debtors nevertheless filed an FDCPA suit, complaining that the

warnings required by 15 U.S.C. §§1692g and 1692e(11) were entirely absent from the letter

informing them of the next four payments due.

In affirming a summary judgment for Security National, this Court emphasized that

defendants "were not demanding payment on a defaulted loan, but rather were servicing a current

payment plan, or forbearance agreement, executed between the Baileys and the Department of

Housing and Urban Development." 154 F.3d at 385-86. Furthermore, this Court considered

14

determinative the manifested intent of the defendant – whether it was seeking to collect an alleged

delinquent debt or an obligation current at the time of acquisition.

In Bailey, the loan was not treated as being in default by Security National at the time

it acquired the loan, and this Court held that Security National was therefore not a debt collector.

However, if the same basic obligation had been treated as in default when Security National got it

(because Security National was seeking to enforce the underlying note and not the forbearance

agreement), Security National would have been a debt collector.

In this case, Fairbanks was treating the Schlossers’ loan as in default at the time

Fairbanks became involved with it. However, it had no basis for doing so. Is Fairbanks subject to

the FDCPA?

Bailey does not answer the question directly, as the case did not involve an obligation

that the collector claimed to be in default at the time it acquired the debt, but which was not in fact

in default. The District Court incorrectly read Bailey as standing for the proposition that one who

acquires and attempts to collect what is allegedly a delinquent debt is not covered by the FDCPA if

it turns out that the debt is not in fact owed. That issue was not presented in Bailey or addressed by

the Bailey court, and cases are not precedent for points which are not in issue. United States v. L.A.

Tucker Truck Lines, Inc., 344 U.S. 33, 37-38 & n.9 (1952).

However, the Bailey Court’s emphasis on what the collector "seeks" to do supports

plaintiffs’ position that when Fairbanks "seeks collection" of an assertedly defaulted mortgage, it is

subject to the FDCPA, even if the mortgage is not really in default, or it duns the wrong person. In

any event, that is what the definitions in the FDCPA and its legislative history plainly require.

The District Court also cited Whitaker v. Ameritech Corp., 129 F.3d 952 (7th Cir.

1996), where this Court held that the local telephone utility, which is legally obligated to bill for long

distance services provided by unrelated companies, is not a "debt collector" with respect to the long

distance services. Whitaker is not in point at all, for it is clear that at the time the customer is first

billed for the long distance services, no payment is yet due for them, much less overdue. The local

15

telephone company is simply collecting a current debt which is neither actually or allegedly

delinquent.

In this case, Fairbanks thought and claimed that it had acquired a delinquent debt

owed by the Schlossers. The loan file showed the debt was delinquent on August 1, 2000, when

Fairbanks acquired it. Fairbanks’ first action after getting the loan file was to send a default notice.

Shortly thereafter, Fairbanks refused to accept payments and began foreclosure proceedings. Clearly,

Fairbanks alleged and asserted that the Schlossers’ debt was delinquent at the time it was transferred

to Fairbanks. That makes the FDCPA applicable. The fact that the Schlossers were not really

delinquent, and had especial need of the statutorily – required notice telling them how to demand

verification of a disputed debt, does not lead to the "absurd" result that they are deprived of the

protections of §1692g.

D. OTHER DISTRICT COURT DECISIONS WHICH

DO ADDRESS THE ISSUE PRESENTED HERE

HOLD THAT THE FDCPA APPLIES.

Significantly, the District Court’s belief that the result in this case was compelled by

the "plain meaning" of the FDCPA is inconsistent with other decisions which apply the FDCPA to

one who acquires what is claimed at the time of acquisition to be a delinquent consumer debt, even

if the claim is false.

In Salgado v. Harvard Collection Services, Inc., 01 C 2572, 2001 WL 803683

(N.D.Ill.), an FDCPA complaint alleged that a bad debt buyer had sold a debt which had been paid,

with the result that the purchaser filed suit on the paid debt. The bad debt buyer’s agent had failed

to properly account for the debtor’s payment, with the result that the bad debt buyer and its transferee

thought that it was still delinquent when it had in fact been paid. The District Court (Aspen, C.J.)

had no difficulty holding that the complaint stated a claim upon which relief could be granted and that

the applicable date of the wrong for limitations purposes was when a collection action was filed on

a debt that was not in default.

An analogous situation was presented in Weinberg v. Arcventures, Inc., 96 C 556,

16

1996 WL 385951 (N.D. Ill.), where there was a delinquent debt, but it was owed by the plaintiff’s

mother, not the plaintiff. The plaintiff received a letter which, on its face, asserted that the addressee

personally owed the debt. It was undisputed that only the mother and not the daughter owed the

debt. However, the debt collector’s assertion that she did was sufficient to make the FDCPA

applicable.

Similarly, in Villarreal v. Snow, 95 C 2484, 1996 WL 28308 (N.D.Ill.), an improper

dunning letter was sent to a person who had an ownership interest in the collateral for a loan, but who

was not personally obligated on the debt. The court held that because the collector asserted the

addressee was personally liable on a delinquent debt, she had standing to recover for the FDCPA

violation and could represent the class of persons who were sent similarly defective letters, whether

they were really obligated on a delinquent debt or only alleged to be obligated. Indeed, Judge

Lindberg stated that it was "absurd" not to apply the FDCPA:

Finally, the proposition on which defendant Snow’s argument is based is absurd.

Under it a letter seeking payment that was addressed to an individual who was in no

way obligated or allegedly obligated on a debt would not be covered by the FDCPA,

while a letter sent to an individual who was obligated would be covered. The

"allegedly obligated" language of the statute is better interpreted to include a situation

in which the letter complained of itself alleges the individual is obligated to pay a debt.

See 15 U.S.C. § 1692a(3). (*2)

Yet other decisions sustain FDCPA claims where the putative debtor has a valid

defense to payment. Thus, in Johnson v. Statewide Collections, supra, 778 P.2d 93 (Wyo. Sup. Ct.

1989), the plaintiff stopped payment on a check issued to pay for goods which were defective and

had been returned to the merchant. A debt collector demanded payment on the check and, after

being informed that the debt was disputed, continued harassing the purchaser, in violation of the

FDCPA. The court held that "standing is afforded an aggrieved consumer to proceed under the

act as long as the collector was purporting to attempt to collect an alleged debt." Johnson v.

Statewide Collections, Inc.

Both the statutory definitions in the FDCPA and its legislative history demonstrate that

17

the FDCPA applies when a person in the business of collecting delinquent debts attempts to collect

what purports to be a debt that was in default when the collector first acquired it, even if (1) the

wrong person is being dunned (Weinberg), (2) the collector contacts the right person, but the debt

was paid or is current or was never owed (Salgado, Villareal, and this case), or (3) the correct person

is contacted and the debt was not paid, but the consumer had a valid reason for not paying (Johnson).

Innocent persons have greater need for the protections of the FDCPA generally and §1692g in

particular than people who actually owe the debts sought to be collected. The District Court’s

holding exposes persons who do not in fact owe money to the most egregious and harmful abuses,

simply because they do not owe the money, and contrary to the clear intent of Congress, as expressed

in the statutory definitions and legislative history.

As long as the collector claims or alleges or asserts that the debt was owed by the

consumer and in default when the collector first acquired it, the FDCPA applies, even if the claim

is incorrect.

CONCLUSION

For the foregoing reasons, plaintiffs respectfully request that this Court reverse the

District Court’s ruling granting defendant’s motion to dismiss plaintiffs’ amended complaint.

___________________

Adela C. Lucchesi

18

STATEMENT PURSUANT TO CIRCUIT RULE 30

I, Adela C. Lucchesi, certify that the required short appendix includes all materials

required by parts (a) and (b) of Circuit Rule 30.

___________________

Adela C. Lucchesi

TYPE VOLUME CERTIFICATION

in accordance with Seventh Circuit Rule 32(d)(3), I hereby certify that this brief meets

the type volume limitation of Seventh Circuit Rule 32(d)(2)(A), in that it contains 6,101 words

according to the word count feature of Corel Word Perfect Suite 8, the program used to produce it.

___________________

Adela C. Lucchesi

19

REQUIRED SHORT APPENDIX

INDEX TO APPENDIX

District Court’s August 31, 2001 Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1

Judgement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A8

Plaintiffs’ Amended Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A9

20

CERTIFICATE OF SERVICE

I, Adela C. Lucchesi, hereby certify that three (3) true and accurate copies of the

foregoing document and a disk were sent Via United States Mail on November 14, 2001 to:

Terrance E. Kiwala

ROOKS, PITTS, POUST

10 South Wacker Drive, Suite 2300

Chicago, Illinois 60606

Michael P. Turiello

ROOKS, PITTS, POUST

111 North Ottawa Street, PO Box 943

Joliet, Illinois 60432

Cynthia Gilman

Mitchel H. Kider

Cynthia G. Swan

WEINER, BRODSKY, SIDMAN AND KIDER

1300 19th Street NW 5th Floor

Washington DC 20036

___________________

Adela C. Lucchesi