Ross, Delisa v. RJM Acquisitions Fun , 358 F.3d 493 ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2059
DELISA ROSS,
Plaintiff-Appellant,
v.
RJM ACQUISITIONS FUNDING LLC,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 6557—Geraldine Soat Brown, Magistrate Judge.
____________
ARGUED JANUARY 4, 2007—DECIDED MARCH 13, 2007
____________
Before POSNER, RIPPLE, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. When a debtor’s debts are dis-
charged in bankruptcy, efforts to collect them are unlawful.
A debtor dunned after bankruptcy, if he knows his rights,
can simply ignore any dunning letter he receives in respect of
one of the discharged debts. But there is a danger that debt
collectors would continue sending these letters, thinking
that the recipient mightn’t realize that his debts had been
discharged or that the debt he was being dunned for, per-
haps long after the bankruptcy, was among the debts that
had been discharged. Or he might think the debt was a
debt that cannot be discharged in bankruptcy.
2 No. 06-2059
Dunning people for their discharged debts would under-
mine the “fresh start” rationale of bankruptcy (bankruptcy
as a system of debtors’ rights as well as creditors’ remedies),
and is prohibited by the Fair Debt Collection Practices Act,
which so far as relates to this case prohibits a debt collector
(a defined term) from making a “false representation of the
character, amount, or legal status of any debt.” 15 U.S.C.
§ 1692e(2)(A). Although not aimed specifically at efforts to
collect debts that have been discharged in bankruptcy, this
provision fits that practice to a T. Turner v. J.V.D.B. & Associ-
ates, Inc., 330 F.3d 991, 994-95 (7th Cir. 2003); cf. Randolph v.
IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004) (“a demand for
immediate payment while a debtor is in bankruptcy (or
after the debt’s discharge) is ‘false’ in the sense that it asserts
that money is due, although, because of the automatic stay
(11 U.S.C. § 362) or the discharge injunction (11 U.S.C. § 524),
it is not”). However, although the representation need not
be deliberate, reckless, or even negligent to trigger liability—
it need only be false—the Act provides a complete defense
to a debt collector who “shows by a preponderance of
evidence that the violation was not intentional and resulted
from a bona fide error notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error.” 15
U.S.C. § 1692k(c).
This safety hatch is important because the Act authorizes
damages in excess of the actual cost incurred by the victim of
a violation: The victim is entitled to “any actual damage
sustained by [him] as a result of” the violation, plus, “in the
case of any action by an individual, such additional dam-
ages as the court may allow, but not exceeding $1,000; or
in the case of a class action, (i) such amount for each named
plaintiff as could be recovered under subparagraph (A),
and (ii) such amount as the court may allow for all other
class members, without regard to a minimum individual
recovery, not to exceed the lesser of $500,000 or 1 per centum
No. 06-2059 3
of the net worth of the debt collector.” 15 U.S.C.
§§ 1692k(a)(1), 2(A), (B). When damages are capped at the
harm to the victim, a potential injurer will not take precau-
tions to avert that harm that cost more than the cost the
harm causes the victim. Brotherhood Shipping Co. v. St. Paul
Fire & Marine Ins. Co., 985 F.2d 323, 327 (7th Cir. 1993); Eimann
v. Soldier of Fortune Magazine, Inc., 880 F.2d 830, 835 (5th
Cir. 1989); Rhode Island Hospital Trust National Bank v. Zapata
Corp., 848 F.2d 291, 295 (1st Cir. 1988). So if required by a
court to pay more, he will spend more, if necessary to avert
the harm, than the cost the harm causes the victim; and
that is too much from an overall social standpoint. Movitz v.
First National Bank, 148 F.3d 760, 763 (7th Cir. 1998); BMW
of North America, Inc. v. Gore, 517 U.S. 559, 593 (1996) (con-
curring opinion); compare Kemezy v. Peters, 79 F.3d 33, 34
(7th Cir. 1996). Hence the section 1692k(a) defense, which
forgives mistakes, even though they inflict harm, when the
cost of avoiding a mistake would be disproportionate to the
harm.
We must decide whether the procedures that the defen-
dant debt collector, RJM, adopted in order to try to
avoid—unsuccessfully in the case of the plaintiff, Ross—
dunning a debtor for a discharged debt were reasonable
within the meaning of section 1692k(a).
In 2002 RJM purchased a number of charged-off accounts
from Federated Department Stores; among them was a
$574.72 debt that Ross owed Federated. The parties to the
sale of the debts—Federated and RJM—agreed in the sale
agreement that “they have not and will not intentionally
attempt to collect[,] or collect[,] debt that has been discharged
in bankruptcy.” But Federated did not guarantee that the
package of debts it was selling to RJM contained no dis-
charged debts.
RJM retained its affiliate Plaza Associates to collect Ross’s
debt. In May 2003 Plaza Associates sent a dunning letter to
4 No. 06-2059
“Lisa Ross.” That was the name under which she had in-
curred the debt to Federated, but she normally goes by the
name “Delisa Ross.” Delisa Ross declared bankruptcy the
following month, listing the Federated debt under the
name Delisa Ross rather than Lisa Ross and stating that
Plaza Associates and RMA—not RJM—were trying to col-
lect the debt. There is a debt collector named RMA, but it is
unrelated to RJM and had nothing to do with Ross’s debt.
Plaza Associates, having been named in the listing of the
debt in the bankruptcy proceeding, was notified of the
bankruptcy and realized (we are not told how) that the
debtor Lisa Ross was the bankruptcy debtor Delisa Ross. Not
waiting for the debt to be discharged, Plaza Associates
abandoned collection efforts and returned the Lisa Ross
file to RJM. But it failed to inform RJM what Lisa Ross’s
true name was and that she had declared bankruptcy.
She received a discharge of the debt on October 17, thus
placing the debt beyond the reach of RJM. Plaza Associates
received notice of the discharge but did not forward it to RJM.
Many months later, RJM, not realizing that Lisa Ross was
Delisa Ross, twice mailed dunning letters to Lisa Ross at
Delisa Ross’s address, for Ross had given her correct ad-
dress, though an incorrect name, to Federated. Ross did not
respond to either letter by paying RJM anything, but instead
referred the letters to her lawyer. He informed RJM that
Lisa Ross was the same person as Delisa Ross. RJM made
no further effort to collect the debt. Nevertheless, Ross—
whose lawyer’s motto is “We sue abusive debt collectors,”
www.myfairdebt.com/b/62/david-philipps/, visited Jan. 19,
2007—sued RJM. The district court granted summary judg-
ment in favor of RJM on the basis of the section 1692k(c)
defense, and Ross appeals.
RJM was mindful of its legal duty not to dun a discharged
bankrupt, and to that end conducted a computerized search
No. 06-2059 5
of bankruptcies, which failed however to reveal Delisa
Ross’s bankruptcy because the search was for Lisa Ross, the
name on the account that had been sold to RJM for collection.
RJM had several procedures in place to minimize errors
such as occurred in this case: an understanding with the
firms that sell it debts for collection that they would not
knowingly sell RJM a discharged debt and that they
would notify RJM if after forwarding a debt they discovered
that it had been discharged or had otherwise become uncol-
lectable; RJM’s bankruptcy search (actually done for it by
another firm); Plaza’s promise to notify RJM if it received a
notice of discharge; and RJM’s prompt cessation of any
attempt to collect a debt upon notification that it had
been discharged. These procedures are reasonable—indeed
Hyman v. Tate, 362 F.3d 965, 968-69 (7th Cir. 2004), holds that
the first and fourth are enough to discharge the duty of
reasonableness, remarking that only .01 percent (1 in 10,000)
of all the debts referred for collection by the debt collector
in that case were later discovered to have been discharged
in bankruptcy. Id. at 968; see also Kort v. Diversified Collection
Services, Inc., 394 F.3d 530, 539 (7th Cir. 2005); Jenkins v.
Heintz, 124 F.3d 824, 834-35 (7th Cir. 1997); Lewis v. ACB
Business Services, Inc., 135 F.3d 389, 401-02 (6th Cir. 1998). We
estimated in Hyman that it would have cost the defendant
$1.5 million to obtain a credit report on each debtor. That
was too much relative to the likely harm caused by the
dunning letters mailed in error in that case—and in this one.
There may for all we know be a nefarious practice of dunning
these unfortunates and laying off only if the plaintiff is
fortunate enough to be represented by a bulldog like
Mr. Philipps. But there is no evidence of this.
The plaintiff argues that with the rapid advances in digital
search technology, pertinently illustrated by the feature of
the Google search engine that asks the searcher “do you
mean?” when the searcher has mistyped a word yet it is
6 No. 06-2059
possible to infer what word he probably meant, RJM
should have adopted a search method that would have
pegged Lisa Ross as Delisa Ross. We don’t know whether
such a method is as yet commercially available. If you type
“Lisa Ross” into Google, you don’t get “do you mean Delisa
Ross?” Google’s approach looks for spelling variations
and suggests a variant (usually the correct) spelling if it
produces substantially more hits. That won’t work for most
searches on names, unless you misspell a famous and dis-
tinctive one. So type “Lisa Ross” into Google and you get
such things as “Lisa Ross Birth & Women’s Center.” And
in a Boolean search the exclamation mark serves as a root
expander, so that the name “ros!” will turn up ross, or
roster, or rostenkowski, but no “Delisa Ross.” There are
other types of search algorithm as well, such as phonetic
and approximate-string matching algorithms, see, e.g.,
http://en.wikipedia.org/wiki/Soundex; /www. codeproject.
com/string/dmetaphone6.asp; http://en.wikipedia.org/
wiki/Approximate_string_matching, but they probably
would not have detected the error either.
Even if there is a search algorithm that would have
turned up Delisa Ross in a search under the name Lisa
Ross, it would not make her case. The word “reasonable”
in the Fair Debt Collection Practices Act defense cannot be
equated to “state of the art,” which is to say, at the tech-
nological frontier. For then whenever a new, more powerful
search program came on the market, debt collectors
who failed to purchase it post haste would find themselves
sued by clients of Mr. Philipps seeking statutory damages on
top of any actual damages they might have suffered. The
investment would be disproportionate to the slight ag-
gregate harms resulting from the handful of dunning letters
that modest procedures occasionally let through the sieve.
Still another objection would be to the invasions of privacy
that would result from the breadth of search designed to
No. 06-2059 7
identify people using more than one name. It is not their
privacy that concerns us but that of people who have noth-
ing to do with the debt that the debt collector is trying
to collect. Had RJM searched under “Ross,” or searched
under Ross’s address or social security number (a search
that if conducted today, however, would be limited to the
last four digits because the full number, though required to
be submitted to the bankruptcy court, is no longer public,
Bankr. R. 1005, 1007(f); Laura DiBiase, “Identity Theft in the
Bankruptcy World,” 22-9 Am. Bankr. Inst. J. 36, 36 (2003)), it
might have collected financial information about a host of
people named Ross who were not Delisa Ross, including
family members at her address, persons with the name Ross
at a different address (since she might have moved), and
people with similar social security numbers.
Liability would be especially perverse in this case because
the plaintiff is the principal author of the harm of which
she complains. In her bankruptcy schedule she was re-
quired to list debts contracted under aliases, Bankr. R. 1005,
a simple and salutary precaution that she was irresponsible in
omitting. In re Tully, 818 F.2d 106, 110-12 (1st Cir. 1987). “The
successful functioning of the Bankruptcy Code hinges both
upon the bankrupt’s veracity and his willingness to make a
full disclosure.” In re Mascolo, 505 F.2d 274, 278 (1st Cir. 1974).
Ross flouted that duty. She was what economists, and even
some judges, call the “least cost avoider” of the harm for
which she now seeks legal redress. Holtz v. J.J.B. Hilliard W.L.
Lyons, Inc., 185 F.3d 732, 743 (7th Cir. 1999); United States v.
Tex-Tow, Inc., 589 F.2d 1310, 1314-15 and n. 10 (7th Cir. 1978);
Rankin v. City of Wichita Falls, 762 F.2d 444, 448 n. 4 (5th
Cir. 1985).
But shouldn’t we worry about the role of Plaza Associates,
a well-known debt-collection company (see www.
plazaassociates.com/, visited March 7, 2007) that is affiliated
with (probably the parent of) RJM? It was Plaza Associates
8 No. 06-2059
that committed the blunder that resulted in the dunning
letters to Ross—and can a debt collector be permitted to
evade the statute by delegating to an affiliate the responsi-
bility for determining whether a debt referred to the debt
collector for collection has been discharged in bankruptcy?
But that is not what happened here. Plaza is a debt collector
too, and was operating in that capacity when it mailed
the dunning letter to Ross. See 15 U.S.C. § 1692a(6). Presum-
ably it escaped being sued only because it mailed its dunning
letter before Ross declared bankruptcy, and therefore its
letter contained no false representation.
But even if we collapsed the two companies into one,
attributing Plaza’s blunder to RJM, Ross could not prevail.
Remember that a mistake is not fatal if it was committed even
though reasonable procedures for avoiding mistakes were
followed; and we are given no reason to doubt that Plaza’s
procedures were reasonable. The reason for its mistake may
simply have been that the notice of Ross’s discharge in
bankruptcy named RMA, not RJM, as the creditor. Maybe
Plaza forwarded the notice to RMA rather than to RJM. Of
course, if so, RMA may have returned it to Plaza, but even
then Plaza might not have guessed that the real creditor was
RJM.
RJM has moved for an award of sanctions under Rule 38 of
the appellate rules, arguing that Ross’s appeal is frivolous.
The appeal has failed, but it is not frivolous, though we
warn Mr. Philipps that he is skating near the edge of his
pond.
The judgment is affirmed, the motion for sanctions denied.
No. 06-2059 9
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-13-07