Timothy McLaughlin v. Phelan Hallinan & Schmieg , 756 F.3d 240 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 13-2015, 13-3679, & 13-3712
_____________
TIMOTHY MCLAUGHLIN,
on behalf of himself and all others similarly situated,
v.
PHELAN HALLINAN & SCHMIEG, LLP;
LAWRENCE T. PHELAN; FRANCIS S. HALLINAN;
DANIEL G. SCHMIEG; ROSEMARIE DIAMOND
Timothy McLaughlin,
Appellant in 13-2015 & 13-3712
Phelan Hallinan & Schmieg, LLP; Lawrence T. Phelan;
Francis S. Hallinan; Daniel G. Shmieg; Rosemarie Diamond,
Appellants in 13-3679
______________
APPEAL FROM THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF
PENNSYLVANIA
(D.C. No. 2-10-cv-01406)
District Judge: Hon. Cathy Bissoon
_______________
Argued May 14, 2014
Before: SMITH, VANASKIE, and SHWARTZ, Circuit
Judges.
(Filed: June 26, 2014)
Trent A. Echard, Esq. [ARGUED]
Harry F. Kunselman, Esq.
Strassburger, McKenna, Gutnick & Gefsky
444 Liberty Avenue
Suite 2200, Four Gateway Center
Pittsburgh, PA 15222
Counsel for Appellant/Cross-Appellee
Jonathan J. Bart, Esq. [ARGUED]
Daniel S. Bernheim, III, Esq.
Wilentz, Goldman & Spitzer
Two Penn Center Plaza
Suite 910
Philadelphia, PA 19102
Counsel for Appellees/Cross-Appellants
______________________
OPINION OF THE COURT
_______________________
SHWARTZ, Circuit Judge.
Timothy McLaughlin had a mortgage. As a result of
an error, the mortgage company believed that he was in
default and referred the matter to the law firm Phelan
Hallinan & Shmieg, LLP, whose lawyers include Lawrence
T. Phelan, Francis S. Hallinan, Daniel G. Schmieg, and
Rosemarie Diamond (collectively “PHS”). PHS sent
McLaughlin a letter about the debt that he claims violated the
Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C.
§ 1692 et seq. The District Court dismissed certain claims
because McLaughlin did not ask PHS to validate the debt
before he filed suit. Because we conclude that he is not
required to do so, we will reverse. We will, however, affirm
the District Court’s imposition of sanctions against PHS for
its failure to produce certain documents during discovery.
I. BACKGROUND
2
A. McLaughlin’s Appeal1
In October 2005, Timothy McLaughlin executed a
$325,000 adjustable rate note in favor of CitiMortgage,
secured by a mortgage on his home. McLaughlin fell behind
on his mortgage payments due to an error on CitiMortgage’s
part. In 2010, CitiMortgage referred McLaughlin’s account
to PHS. PHS sent him a letter (the “Letter”) dated June 7,
2010, that stated that “[t]he amount of the debt as of
05/18/2010” was $365,488.40. App. 73. This included two
line items relevant here: $650 in “Attorney’s Fees” and $550
for “Costs of Suit and Title Search.” App. 54-55, 73-74.
McLaughlin asserts, among other things, that these fees and
costs had not actually been incurred as of the date stated in
the Letter.
Rather than seek verification of the debt from PHS,
McLaughlin filed a putative class action complaint alleging
that PHS violated several sections of the FDCPA by, among
other things,2 falsely representing that PHS had performed
legal services on or before May 18, 2010. The District Court
dismissed the complaint without prejudice, holding that
McLaughlin could not bring suit challenging the information
contained in the Letter without having first disputed the
validity of the debt pursuant to the FDCPA’s validation
procedure.3
1
Because McLaughlin only appeals the dismissal of
his claims pursuant to Fed. R. Civ. P. 12(b)(6), the facts are
drawn from McLaughlin’s First Amended Complaint. See
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir.
2008) (stating we “accept all factual allegations as true” in
reviewing the dismissal of a complaint) (internal quotation
marks omitted).
2
McLaughlin also alleged that the Letter gave the
impression that attorneys had been involved in the debt
collection activities. This claim was resolved in favor of PHS
at summary judgment and McLaughlin does not appeal that
ruling.
3
Under the FDCPA, a debt collector who sends a
notice concerning a debt must include “the amount of the
debt” and “the name of the creditor to whom the debt is
3
After McLaughlin filed an amended complaint, the
District Court issued another opinion, again stating that
McLaughlin was required “to follow the debt validation
procedure required by section 1692g” and that “the amended
complaint fail[ed] to allege that” he had done so. App. 152-
53. The District Court also found that the fees in the Letter
were estimates and held that “estimating the amount of
attorneys’ fees in an itemized debt collection notice does not
violate the FDCPA.” App. 152-53. For these reasons, the
District Court dismissed McLaughlin’s claims under 15
U.S.C. § 1692e(2) and (10)4,5 that alleged misrepresentations
concerning the amount of the debt and the fees for services
associated with its collection. McLaughlin appeals this
ruling.
B. PHS’s Cross-Appeal
owed” as well as inform the consumer that if he or she
“notifies the debt collector in writing . . . that the debt, or any
portion thereof, is disputed, the debt collector will obtain
verification of the debt” and mail a copy to the consumer. 15
U.S.C. § 1692g(a). The Letter included this information. The
statute further provides that if the consumer disputes the debt,
then “the debt collector shall cease collection of the debt, or
any disputed portion thereof,” until the debt collector verifies
the debt and mails the verification to the consumer. 15
U.S.C. § 1692g(b).
4
Section 1692e(2) prohibits “[t]he false representation
of” “the character, amount, or legal status of any debt” or
“any services rendered or compensation which may be
lawfully received by any debt collector for the collection of a
debt.” 15 U.S.C. § 1692e(2). Section 1692e(10) prohibits
“[t]he use of any false representation or deceptive means to
collect or attempt to collect any debt or to obtain information
concerning a consumer.” 15 U.S.C. § 1692e(10).
5
The District Court also dismissed McLaughlin’s
claim under 15 U.S.C. § 1692f(1). Section 1692f(1) prohibits
“[t]he collection of any amount . . . unless such amount is
expressly authorized by the agreement creating the debt or
permitted by law.” 15 U.S.C. § 1692f(1). McLaughlin does
not challenge that ruling on appeal.
4
One claim survived dismissal, namely McLaughlin’s
claim that PHS violated the FDCPA by creating the false
impression that attorneys were involved in the debt collection
activity in violation of § 1692e(3).6 Discovery proceeded on
this claim. Before the motion had been decided, McLaughlin
had served a document demand upon PHS seeking “‘[a]ll
invoices for professional services rendered by [PHS] in
relation to the loan of Timothy McLaughlin.’” App. 186
(alterations in original). PHS objected, claiming that the
information was not likely to lead to the discovery of
admissible evidence. In response, McLaughlin filed a motion
to strike this objection and a motion to compel, arguing that
the invoices were “clearly relevant” to his claim “that
Defendants sought attorney’s fees and costs from him that
had not been incurred and were not authorized by the
underlying loan documents.” Pl.’s Mot. to Strike Objections
& Compel Disc. at 10, McLaughlin v. Phelan Hallinan &
Schmieg, LLP, No. 10-1406 (W.D. Pa. Nov. 9, 2011), ECF.
No. 66. The District Court orally granted McLaughlin’s
motion. Despite this order, PHS did not produce the invoices
during discovery. Instead, they withheld them until they
attached them to their summary judgment reply brief.
The District Court found that these invoices
“contain[ed] . . . material facts” showing that PHS had in fact
misstated the attorney’s fees and costs of suit. App. 161.
Specifically, the District Court noted that the invoices showed
that PHS had incurred only $440 in total costs and $625 in
fees, and not the $550 and $650, respectively, set forth in the
Letter. As a result, the District Court invited McLaughlin to
file a motion seeking relief from its orders dismissing his
§ 1692e(2) claim.
McLaughlin thereafter moved for reconsideration of
the District Court’s dismissal order, but the motion was
denied. The District Court did not say that the Letter was
accurate but rather held that it contained “reasonable
estimates” of the itemized costs, and therefore did not violate
the FDCPA. App. 182-84.
6
Section 1692e(3) prohibits “[t]he false representation
or implication that any individual is an attorney or that any
communication is from an attorney.” 15 U.S.C. § 1692e(3).
5
The District Court, however, did find that PHS’s
failure to produce the invoices during discovery was
sanctionable under Fed. R. Civ. P. 37(b)(2)(A) and sua sponte
ordered PHS to pay all expenses, including attorney’s fees,
that McLaughlin had incurred in connection with his motion
for reconsideration, reasoning that PHS’s action prevented
full and timely investigation of the facts and led to additional
briefing on the summary judgment motion.
The parties thereafter submitted briefs concerning the
amount of the award. PHS argued that the District Court
raised the issue of sanctions sua sponte, and hence did not
provide PHS with notice that sanctions were being
contemplated, and asked the District Court7 to “reevaluat[e] .
. . the imposition of sanctions” in light of its view that the
invoices were irrelevant to the lack of attorney involvement
claim under § 1692e(3), which was the only claim pending at
the time discovery occurred, and to find that its
noncompliance with the discovery order was therefore neither
in bad faith nor willful. Mem. of Law in Opp’n to Pl.’s Appl.
for Att’ys Fees & Expenses at 1-2, Apr. 8, 2013, ECF No.
111 [“ECF No. 111”]. The District Court considered this
request, found that PHS had ample opportunity to address the
sanctions issue, adopted the finding that the conduct was
sanctionable, and ordered sanctions in the amount of
$15,050.50. PHS appeals the sanctions order.
II. DISCUSSION8
A. FDCPA Claim
We will first address McLaughlin’s appeal of the order
dismissing his claims under § 1692e(2) and (10). We
exercise plenary review of a district court’s order granting a
7
Because of Chief Judge Gary Lancaster’s passing, the
case was reassigned to Judge Cathy Bissoon, who considered
and resolved the parties’ arguments regarding the sanctions.
8
The District Court had jurisdiction pursuant to 28
U.S.C. § 1331 and 15 U.S.C. § 1692k(d). We have
jurisdiction pursuant to 28 U.S.C. § 1291.
6
motion to dismiss. Burtch v. Milberg Factors, Inc., 662 F.3d
212, 220 (3d Cir. 2011).9
1. Debt Collection Activity
McLaughlin contends that PHS’s Letter “knowingly
misrepresented that, as of May 18, 2010, $650 in attorney’s
fees and $550 in ‘costs of suit and title search’ were due and
owing,” and hence that the Letter violates the FDCPA.
Appellant Br. 6. PHS contends that the Letter does not
constitute “debt collection activity” subject to the FDCPA
because it “made no demand for payment, contained no
suggestion that [McLaughlin] settle the underlying debt, nor
enter into a payment plan.” Appellee Br. 31 (emphasis
omitted).
The FDCPA “regulates ‘debt collection’” but does not
define the term. Simon v. FIA Card Servs., N.A., 732 F.3d
259, 265 (3d Cir. 2013). The statute’s substantive
provisions, however, make clear that it covers conduct “taken
in connection with the collection of any debt.” Id. (internal
quotation marks and citations omitted). Put differently,
activity undertaken for the general purpose of inducing
payment constitutes debt collection activity. Id.; see also
Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 385 (7th
Cir. 2010) (describing “the commonsense inquiry of whether
a communication from a debt collector is made in connection
with the collection of any debt”). Thus, a communication
need not contain an explicit demand for payment to constitute
debt collection activity. Simon, 732 F.3d at 266. Indeed,
communications that include discussions of the status of
payment, offers of alternatives to default, and requests for
financial information may be part of a dialogue to facilitate
9
In his notices of appeal, McLaughlin identified both
the District Court’s order dismissing his claims under Rule
12(b)(6) and the order denying his motion for reconsideration,
but this does not affect the standard of review. McAlister v.
Sentry Ins. Co., 958 F.2d 550, 552-53 (3d Cir. 1992)
(“Because an appeal from a denial of a Motion for
Reconsideration brings up the underlying judgment for
review, the standard of review varies with the nature of the
underlying judgment.”).
7
satisfaction of the debt and hence can constitute debt
collection activity. Id.
PHS’s Letter is plainly part of such a dialogue. The
Letter states that PHS is a “debt collector attempting to
collect a debt” and that information PHS obtains “may be
used for that purpose,” namely to collect a debt. App. 73. It
then provides an invoice-like presentation of the amount due.
The Letter also informs the recipient how to obtain “updated .
. . payoff quotes,” meaning how to obtain current information
about the amount that would have to be paid to satisfy the
debt. Id.
It is reasonable to infer that an entity that identifies
itself as a debt collector, lays out the amount of the debt, and
explains how to obtain current payoff quotes has engaged in a
communication related to collecting a debt. Thus, the Letter
constitutes debt collection activity under the FDCPA and
misrepresentations contained therein may provide a basis for
relief.
2. Estimates
McLaughlin argues that the failure to accurately set
forth the amount due as of May 18, 2010 constitutes a
misrepresentation actionable under § 1692e(2) and (10) and
the order dismissing these claims should be reversed. These
subsections prohibit “[t]he false representation of” either “the
character, amount, or legal status of any debt” or “any
services rendered or compensation which may lawfully be
received by any debt collector for the collection of a debt,” 15
U.S.C. § 1692e(2), as well as “[t]he use of any false
representation or deceptive means to collect or attempt to
collect any debt or to obtain information concerning a
consumer,” 15 U.S.C. § 1692e(10).
Each of these provisions deals with debt collectors’
representations to debtors. We analyze such communications
“from the perspective of the least sophisticated debtor.”
Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008);
Brown v. Card Serv. Ctr., 464 F.3d 450, 454 (3d Cir. 2006).
This low standard “effectuate[s] the basic purpose of the
FDCPA: to protect all consumers, the gullible as well as the
8
shrewd.” Rosenau, 539 F.3d at 221 (internal quotation marks
and alterations omitted).
PHS contends that the Letter did not violate the
FDCPA because it contained estimates of the amount owed.
This characterization is inconsistent with the unequivocal
language of the Letter. The Letter says that it sets forth “[t]he
amount of the debt as of 05/18/2010.” App. 73. The only
message this conveys to the reader is the amount owed on a
specific date. Nothing says it is an estimate or in any way
suggests that it was not a precise amount. As the drafter of
the Letter, PHS is responsible for its content and for what the
least sophisticated debtor would have understood from it. See
Glover v. FDIC, 698 F.3d 139, 149 (3d Cir. 2012) (“The
language of [§ 1692e(2)(A)] creates a straightforward,
objective standard. Nothing suggests that an allowance is to
be made for a defendant’s lack of knowledge or intent.”). If
PHS wanted to convey that the amounts in the Letter were
estimates, then it could have said so. It did not. Instead, its
language informs the reader of the specific amounts due for
specific items as of a particular date. If the amount actually
owed as of that date was less than the amount listed, then,
construing the facts in the light most favorable to McLaughlin
as we must when reviewing the dismissal under Rule
12(b)(6), Phillips, 515 F.3d at 233, McLaughlin has stated a
claim that the Letter misrepresents the amount of the debt in
violation of § 1692e(2) and (10).
3. Prerequisite to Filing Suit
PHS argues that it nonetheless cannot incur “liability
as a matter of law where it has complied with the debt
validation procedure set forth in the FDCPA,”10Appellee Br.
10
Contrary to PHS’s argument, McLaughlin’s
assertion is not a new theory as his pleadings show he alleged
that the amount of the debt listed in the Letter was inaccurate.
See App. 63 (First Amended Complaint alleging the Letter
“misstated the amount of the debt” and gave “a false
impression of the amount of the alleged debt”), 182 (District
Court stating “McLaughlin argues that PHS violated section
1692e(2) of the FDCPA because the attorneys’ fees and costs
9
26-27 (emphasis omitted), and McLaughlin did not seek to
validate the debt described in the Letter.11 This argument
lacks any statutory support.
The statute’s text provides no indication that Congress
intended to require debtors to dispute their debts under §
1692g before filing suit under § 1692e, and in fact, the
statutory language suggests the opposite. The language of §
1692g indicates that disputing a debt is optional. The statute
lists consequences “[i]f the consumer” disputes a debt, 15
U.S.C. § 1692g(b)12 (emphasis added), and it makes clear that
stated in the Letter do not match the attorneys’ fees and costs
stated in contemporaneous invoices”).
11
Several district courts share this view. See, e.g.¸
Bleich v. Revenue Maximization Grp., Inc., 233 F. Supp. 2d
496, 500 (E.D.N.Y. 2002) (holding that a plaintiff could not
sue in response to a misstated debt in a letter conforming to
the FDCPA’s validation requirements and reasoning “[h]ad
Plaintiff exercised her rights under the FDCPA to obtain debt
verification, it is entirely likely that litigation would have
been avoided”); Lindbergh v. Transworld Sys., Inc., 846 F.
Supp. 175, 179 (D. Conn. 1994) (“[T]he court can only
wonder why the plaintiff has chosen to impose the significant
burden of litigation on both the defendant and this court,
instead of simply following the cost-effective procedures
provided by the FDCPA specifically designed to facilitate the
exchange of information between debt collectors and
debtors.”); see also Lorandeau v. Capital Collection Serv.,
No. 10-3807, 2011 WL 4018248, at *11-12 (E.D. Pa. Sept. 8,
2011) (holding that a plaintiff cannot bring a claim based
upon a defendant’s attempt to collect an invalid debt unless
the plaintiff disputed the debt); Palmer v. I.C. Sys., Inc., No.
04-3237, 2005 WL 3001877, at *5 (N.D. Cal. Nov. 8, 2005)
(recognizing that although the FDCPA does not require a
consumer to dispute a debt, a consumer who fails to do so
cannot assert a claim based upon the debt collector’s attempt
to collect an invalid debt). As explained in the text, there is
no statutory support for this view.
12
Specifically, the debt collector must
cease collection of the debt, or any disputed
portion thereof, until the debt collector obtains
10
failure to dispute a debt cannot be construed as an admission
of liability. 15 U.S.C. § 1692g(c). Thus, the statute protects a
prospective litigant from being penalized in a lawsuit if he or
she chooses not to seek validation. The absence of a pre-suit
validation request requirement does not appear accidental
given the protection Congress bestowed on those who opt not
to seek validation of the debt.
Moreover, permitting debtors to proceed under §
1692e without first disputing their debts under § 1692g is
consistent with this Court’s FDCPA jurisprudence, which has
never imposed a § 1692g prerequisite and which has
consistently emphasized the purpose of the FDCPA as a
remedial statute, applying a “least sophisticated debtor”
standard to “lender-debtor communications.” Brown, 464
F.3d at 453-54; see also Wilson v. Quadramed Corp., 225
F.3d 350, 354 (3d Cir. 2000) (“[T]he debt validation
provisions of section 1692g were included . . . to guarantee
that consumers . . . receive[d] adequate notice of their rights
under the law.”). Imposing a § 1692g dispute prerequisite in
the absence of any statutory language requiring it would
undermine the FDCPA’s protection of unsophisticated
debtors, who would have no reason to suspect that they would
be prevented from filing suit concerning deceptive
communications as a consequence of failing to invoke the
optional statutory validation procedure.
Furthermore, imposing a requirement that the debtor
challenge the validity of the debt described in a
communication before filing suit would have the effect of
verification of the debt or a copy of a judgment,
or the name and address of the original creditor,
and a copy of such verification or judgment, or
name and address of the original creditor, is
mailed to the consumer by the debt
collector. . . . Any collection activities and
communication during the 30-day period may
not overshadow or be inconsistent with the
disclosure of the consumer’s right to dispute the
debt . . . .
15 U.S.C. § 1692g(b).
11
immunizing false statements that a consumer failed to
promptly dispute.13 Put differently, if a debt collector’s
communication was false, the debt collector would avoid
liability for the false communication simply because a request
to validate its contents was not made. This would be
inconsistent with the FDCPA’s goal of ensuring debt
collectors act responsibly.
Finally, declining to require debtors to lodge disputes
under § 1692g before filing suit would not frustrate the
FDCPA’s validation procedure. See Lindbergh v. Transworld
Sys., Inc., 846 F. Supp. 175, 179 (D. Conn. 1994) (contrasting
“the significant burden of litigation” with “the cost-effective
[validation] procedures provided by the FDCPA”). Debtors
will still have an incentive to follow the validation procedure
even if pursuit of the validation process is not required to
preserve the ability to file suit as it can enable debtors to
cheaply and quickly resolve disputes with debt collectors.
Moreover, because the validation process facilitates the
exchange of information, it may ultimately help debtors
bolster their FDCPA claims. See Hubbard v. Nat’l Bond &
Collection Assocs., Inc., 126 B.R. 422, 428 (D. Del.), aff’d,
947 F.2d 935 (3d Cir. 1991) (table) (“[T]his exchange of
information [under § 1692g’s validation procedure] provides
debt collectors with ‘actual knowledge’ of the facts relevant
to their collection efforts. This is significant because only a
knowing violation of § 1692e is actionable.”).
For these reasons, a consumer is not required to seek
validation of a debt he or she believes is inaccurately
described in a debt communication as a prerequisite to filing
13
Gigli v. Palisades Collection, L.L.C., No. 06-1428,
2008 WL 3853295, at *6-7 (M.D. Pa. Aug. 14, 2008) (“If the
debt collector employs false, deceptive, or misleading
representations or unfair or unconscionable means in the
course of collecting or attempting to collect a debt, the fact
that the debt collector provided the consumer written notice
complying with § 1692g(a) and/or the consumer never
disputed the debt has no bearing on the debt collector’s
liability under the FDCPA. . . . Immunizing unscrupulous
debt collectors, while depriving consumers of a remedy,
would frustrate the FDCPA.”).
12
suit under § 1692e. Thus, the District Court’s imposition of
such a requirement was incorrect and its dismissal of
McLaughlin’s § 1692e(2) and (10) claims on this basis was
improper.
B. Sanctions
We next address the order imposing sanctions against
PHS. We review the District Court’s imposition of sanctions
under Rule 37 for abuse of discretion. Grider v. Keystone
Health Plan Cent., Inc., 580 F.3d 119, 134 (3d Cir. 2009). A
district court abuses its discretion if it “bases its ruling on an
erroneous view of the law or on a clearly erroneous
assessment of the evidence.” Id. (internal quotation marks
and alterations omitted).14 We exercise plenary review of
PHS’s assertion that it was not provided due process before
the District Court imposed sanctions. Martin v. Brown, 63
F.3d 1252, 1262 (3d Cir. 1995).
PHS asserts that the sanction order should be reversed
because it did not engage in sanctionable conduct and it did
not receive notice that sanctions were being contemplated
before they were imposed. We will address each contention
in turn.
Rule 37 provides, in relevant part, that a party’s failure
“to obey an order to provide or permit discovery” allows “the
court . . . [to] issue further just orders.” Fed. R. Civ. P.
37(b)(2)(A). Rule 37 requires “the court [to] order the
disobedient party, the attorney advising that party, or both to
pay the reasonable expenses, including attorney’s fees, caused
by the failure, unless the failure was substantially justified or
other circumstances make an award of expenses unjust.” Fed.
R. Civ. P. 37(b)(2)(C).
14
PHS argues that the factors listed in Poulis v. State
Farm Fire and Casualty Co., 747 F.2d 863, 868-70 (3d Cir.
1984), should be considered when reviewing a trial court’s
imposition of sanctions. Poulis, however, addressed “the
extreme sanction of dismissal.” Poulis, 747 F.2d at 868
(internal quotation marks omitted). Because a monetary
sanction was imposed here, Poulis is inapposite.
13
Here, there was a clear violation of the District Court’s
discovery order. The District Court ordered PHS to produce
documents responsive to McLaughlin’s demand for invoices
for any services provided relating to the debt. PHS did not do
so. The District Court explained that McLaughlin’s
document request plainly encompassed the invoices PHS
withheld and it rejected PHS’s argument that the invoices it
withheld were not requested. The District Court further
explained that PHS’s noncompliance impacted the parties’
investigation of the facts and caused additional briefing. As a
result, it properly found PHS violated the discovery order.
PHS argues that it should not have been sanctioned for
this noncompliance because the invoices McLaughlin
requested were irrelevant in light of the District Court’s
December 20, 2011 order stating that McLaughlin’s only
remaining claim at that time was his § 1692e(3) claim
concerning PHS’s alleged misrepresentations regarding the
involvement of attorneys. Appellee Br. 41. This does not
excuse PHS’s failure to comply with a discovery order that
had been issued the previous day and remained extant.
Moreover, contrary to PHS’s argument, the invoices relating
to PHS’s work on McLaughlin’s debt were relevant under
Fed. R. Civ. P. 26(b)(1) to McLaughlin’s then-pending
§ 1692e(3) claim that no attorney worked on or reviewed the
Letter. PHS in fact acknowledged the relevancy of these
documents by using them to support its motion for summary
judgment. Thus, the District Court’s conclusion that PHS’s
noncompliance with its discovery order was sanctionable was
correct.
PHS argues that it was entitled to notice and an
opportunity to respond before the District Court imposed
sanctions. Due process requires that the party against whom
sanctions might be imposed receive notice that sanctions are
being considered. See, e.g., In re Tutu Wells Contamination
Litig., 120 F.3d 368, 379 (3d Cir. 1997) (“The party against
whom sanctions are being considered is entitled to notice of
the legal rule on which the sanctions would be based, the
reasons for the sanctions, and the form of the potential
sanctions.”); Martin, 63 F.3d at 1262-63 (“With regard to
sanctions, particularized notice of the grounds for the sanction
under consideration is generally required.”). The “mere
14
existence” of a rule or statute concerning sanctions is
insufficient to put a party on notice that sanctions are being
contemplated. Jones v. Pittsburgh Nat’l Corp., 899 F.2d
1350, 1357 (3d Cir. 1990).
It is true that PHS did not receive notice that sanctions
were being considered before the District Court initially
imposed them and hence did not immediately have an
opportunity to argue that its failure was substantially justified.
PHS, however, eventually provided arguments why it
believed its conduct was not sanctionable. More specifically,
in connection with the briefing on the magnitude of sanctions,
PHS explicitly laid out its arguments why its conduct was
substantially justified and neither in bad faith nor willful and
asked the newly assigned District Court Judge to
“reevaluat[e] . . . the imposition of sanctions.” ECF No. 111.
The District Court considered these arguments, reaffirmed the
relevance of the discovery sought and the impact of the tardy
production, and, for those reasons “and for all of the reasons
previously stated in” her predecessor’s decision, ordered
sanctions in the form of attorney’s fees. Thus, PHS had
notice of the conduct that the District Court found to be
sanctionable, had an opportunity to be heard, and received
review and a ruling from a different judge concerning their
conduct. Accordingly, we conclude PHS received due
process and we will affirm the sanctions order.
III. CONCLUSION
For these reasons, we will reverse the District Court’s
order dismissing McLaughlin’s FDCPA claims under
§ 1692e(2) and (10) and affirm its order imposing sanctions
against PHS.
15