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
i
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
ii
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
iii
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
1
iv
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.
2
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.
3
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).
4
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).
5
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
6
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
7
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
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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
