Gregory Rose, et ux v. FMS, Inc. ( 2013 )

FILED
APRIL 30, 2013
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
GREGORY ROSE and CATHERINE ) No. 30380-2-111
ROSE, and the marital community )
composed thereof, )
)
Appellants, )
)
v. ) UNPUBLISHED OPINION
)
FMS, INC., d/b!a OKLAHOMA FMS, INC., )
an Oklahoma corporation, )
)
Respondent. )
BROWN, J. - Robert W. Mitchell, pro bono attorney for debtors Catherine and
Gregory Rose, appeals sanctions granted against him by the trial court to FMS, Inc.
d/b!a! Oklahoma FMS, Inc. FMS is a debt collection agency collecting the Roses' five-
month unpaid account assigned for collection by Kohl's Department Store, Inc. Mr.
Mitchell sued FMS for the Roses under the Washington Collection Agency Act (CM),
chapter 19.16 RCW and the federal Fair Debt Collection Practices Act (FDCPA), 15
U.S.C. §§ 1692 et seq. to curb FMS's harassing collection practices. The trial court
summarily dismissed the Roses' suit as unfounded after deciding the Roses were not
"in default" with Kohl's within the meaning of the FDCPA because of Kohl's internal
policy not declaring an account "in default" until after six months of non-payment. The
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Rose v. FMS, Inc., et al.
trial court sanctioned Mr. Mitchell $70,546.44 for FMS's attorney fees and costs under
CR 11(a) (insufficient inquiry before filing suit), CR 26(g) (discovery violations), and CR
56(g) (affidavits made in bad faith). Mr. Mitchell mainly contends the trial court erred in
its "in default" reasoning and he argues the underlying litigation was not baseless or
frivolous. Amicus Curiae University Legal Assistance (ULA) additionally argues CR
26{g) and CR 56(g) sanctions were misplaced and would chill pro bono representation.
We reverse the CR 11 (a) sanctions because we conclude the underlying litigation was
not baseless or frivolous. We vacate the CR 26(g) and CR 56{g) sanctions because the
supporting record is vague.
FACTS
Mrs. Rose used a credit card from Kohl's Department Store Inc. to make
purchases for herself and her family on credit. Kohl's standard credit card agreement
stated, "You will be in default if you fail to pay any Minimum Payment by the time and
date it is due." Clerk's Papers (CP) at 566. A Kohl's risk management operations
manager stated, however, "[a]s a matter of regular business practice, Kohl's does not
declare card holder accounts in default until they are at least six months in arrears." CP
at 990. Nothing in our record shows this regular business practice was made known to
the Roses to contradict the default language of the credit card agreement.
Mrs. Rose generally made minimum monthly payments on her charges. In early
2010, the Roses were facing bankruptcy and stopped making payments. By March
2010, they had missed several minimum payments and incurred additional late fees of
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$29; their account was $276 past due and their total outstanding balance was $843.17.
Kohl's assigned the debt to FMS to collect on the missed payments. The next day,
FMS began attempting to contact the Roses. At the time of the assignment, the debt
was five months behind.
FMS sent several collection letters. FMS's call log shows 149 calls made to
reach the Roses by telephone; almost all calls went unanswered. FMS contacted Mrs.
Rose on March 18 at work. Her husband then called Mr. Mitchell, who was
representing the Roses in another matter, and asked him to put a stop to the calls.
In June 2010, Mr. Mitchell sued FMS, asserting statutory claims under the federal
FDCPA and Washington's CAA, and Consumer Protection Act (CPA), in addition to
common law tort claims for emotional distress. FMS responded to Mr. Mitchell, stating
that the "account was neither in default nor otherwise 'charged off,' but merely
outstanding." CP at 319. FMS denied liability. Two days later, Mr. Mitchell sent a
return e-mail, including 10 attachments, with discovery requests and a CR 30(b)(6)
notice of deposition of FMS in Spokane.
Counsel held a CR 26(i) (discovery) conference on August 10,2010, and then
one week later, FMS responded to all of the Roses' interrogatories, requests for
production, and requests for admissions, producing approximately 268 pages of
responsive documents along with the audio recording of the single telephone call
between an FMS representative and Mrs. Rose on March 18, 2010. Soon after, Mr.
Mitchell e-mailed that he wanted another CR 26(i) conference this time, concerning
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FMS's responses. Mr. Mitchell offered to dismiss the complaint for $4,900 and a
promise from FMS to cease attempts to collect the past debt. FMS declined Mr.
Mitchell's offer and served the Roses with interrogatories and requests for production of
documents and requests for admission. FMS argued most of the Roses' answers were
insufficient, deceptive, incorrectly claimed as privileged, or inconsistent.
Both parties requested summary judgment. The Roses' joint declaration in
support of summary judgment, prepared by Mr. Mitchell, incorrectly stated that calls
were made to Mr. Rose's cell phone and that FMS called Mrs. Rose at work after she
asked them not to call that number when FMS reached her at work on March 18. Mr.
Mitchell incorrectly asserted for the first time on summary judgment that FMS had left
"at least 19 more voicemail messages." CP at 571.
In November 2010, the court granted FMS's motion for summary dismissal of the
Roses' complaint, focusing mainly on the Roses inability to show their Kohl's account
was in default when assigned to FMS for collection to trigger application of the FDCPA
and CM protections. Mr. Mitchell requested reconsideration, arguing newly discovered
evidence warranted review, but Mr. Mitchell failed to serve FMS and the Roses
consequently withdrew the motion.
In February 2011, FMS moved for sanctions against Mr. Mitchell. By letter
opinion, the trial court granted its motion, finding Mr. Mitchell violated CR 11 (a) for "filing
suit without sufficient research, factual or legal, into the question of whether the account
was 'in default' as that term of art applies to the various causes of action sued under";
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violated CR 26(g) for "discovery violations ... [for answering] the interrogatories and
requests for admission and production in an offhand way, in a blatant attempt to thwart
the reasonable discovery efforts of the defendant"; violated CR 56(g) for bad faith filing
of affidavits "in regard to the summary judgment issues"; and "misrepresentations of fact
in Mr. Mitchell's oral statements." CP at 998.
The court later entered a second letter opinion regarding the sanctions amount
and a finding of reasonableness. The court then ordered Mr. Mitchell to pay $70,546.44
in attorney fees, paralegal fees, and costs to FMS. The order solely includes findings
regarding reasonableness; the second letter contained no findings regarding the basis
for the sanctions. Mr. Mitchell appealed.
ANALYSIS
The issue is whether the trial court erred by abusing its discretion in sanctioning
Mr. Mitchell for violating CR 11 (a), CR 26(g) and CR 56(g). Mr. Mitchell contends the
Roses' account was in default when he filed suit thereby precluding CR 11(a) sanctions.
Amicus ULA additionally argues Mr. Mitchell's actions were not sanctionable under any
of the other rules.
We review the reasonableness of an attorney fees award, including CR 11
sanctions for abuse of discretion. Skimming v. Boxer, 119 Wn. App. 748, 754, 82 P.3d
707 (2004). Similarly, sanctions under CR 26 and CR 56 are reviewed for abuse of
discretion. Magana v. Hyundai Motor America, 167 Wn.2d 570,582,220 P.3d 191(2009); Just Dirt, Inc. v. Knight Excavating, Inc., 138 Wn. App. 409, 415,157 P.3d 4315
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(2007). A court's determination will not be disturbed absent a clear abuse of discretion.
Mayerv. Sto Indus., Inc., 156 Wn.2d 677, 684,132 P.3d 115 (2006). "A trial court
abuses its discretion when its order is manifestly unreasonable or based on untenable
grounds." Washington State Physicians Ins. Exchange & Ass'n v. Fisons Corp., 122
Wn.2d 299, 339, 858 P .2d 1054 (citing Holbrook v. Weyerhaeuser Co., 118 Wn.2d 306,
315,822 P.2d 271 (1992». "A discretionary decision rests on 'untenable grounds' or is
based on 'untenable reasons' if the trial court relies on unsupported facts or applies the
wrong legal standard; the court's decision is 'manifestly unreasonable' if 'the court,
despite applying the correct legal standard' to the supported facts, adopts a view 'that
no reasonable person would take. '" Mayer, 156 Wn.2d at 684 (internal quotation marks
omitted) (quoting State v. Rohrich, 149 Wn.2d 647, 654, 71 P.3d 638 (2003)).
If a trial court's findings of fact are clearly unsupported by the record, then an
appellate court will find that the trial court abused its discretion. Mayer, 156 Wn.2d at
684. An appellate court can disturb a trial court's sanction only if it is clearly
unsupported by the record. See Ermine v. City of Spokane, 143 Wn.2d 636, 650, 23
P.3d 492 (2001) (noting that a reasonable difference of opinion does not amount to
abuse of discretion).
Attorney fees may be awarded as a CR 11 sanction. The goal of CR 11 (a) is to
prevent baseless filings and filings made for improper purposes. Bryant v. Joseph Tree,
Inc., 119 Wn.2d 210,217,829 P.2d 1099 (1992). If a party engages in such conduct,
"the court ... may impose ... an appropriate sanction, which may include an order to
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pay to the other party or parties the amount of the reasonable expenses incurred
because of the filing of the pleading, motion, or legal memorandum, including a
reasonable attorney fee." CR 11{a). A baseless filing is one not supported by the facts
or existing law. Bryant, 119 Wn.2d at 217. To award sanctions for a baseless filing, the
court must evaluate '''whether a reasonable attorney in like circumstances could believe
his or her actions to be factually and legally justified'" and whether it is '''patently clear
that a claim has absolutely no chance of success. '" MacDonald v. Korum Ford, 80 Wn.
App. 877, 884,912 P.2d 1052 (1996) {quoting Oliveri v. Thompson, 803 F.2d 1265,
1275 (2d Cir.1986)). CR 11(a)(2) permits pleadings in "good faith" supporting
"arguments for the extension, modification, or reversal of existing law or the
establishment of new law."
The court found Mr. Mitchell did not adequately research whether the account
was in default before filing suit. 1 A default finding is required solely in the FDCPA claim.
The FDCPA was enacted to address the "abundant evidence of the use of abusive,
deceptive, and unfair debt collection practices," which "contribute to the number of
personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of
individual privacy." 15 U.S,C. § 1692(a) and (e). Among other things, the Act prohibits
practices such as "[clausing a telephone to ring ... repeatedly or continuously with
intent to annoy, abuse, or harass any person." 15 U.S.C. § 1692d(5). The FDCPA
1FMS contends any discussion regarding whether the Roses were in default is
inappropriate because the issue is raised for the first time on appeal. See RAP 2.5{a).
Our record, however, shows Mr. Mitchell raised the default issue in his response to
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applies solely to debt collectors. 15 U.S.C. § 1692a(6)(F)(iii). A debt collector is a
"person collecting or attempting to collect any debt owed or due or asserted to be owed
or due another to the extent such activity ... concerns a debt which was not in default
at the time it was obtained by such person." 15 U .S.C. § 1692a(6)(F)(iii) (emphasis
added). Thus, to file suit against a debt collector under the FDCPA that debt must be in
default.
Here, the credit contract states, "You will be in default if you fail to pay any
Minimum Payment by the time and date it is due." CP at 566. The words in a contract
are generally given their plain, ordinary meaning. Hearst Commc'ns, Inc. v. Seattle
Times Co., 154 Wn.2d 493,504,115 P.3d 262 (2005). While the Roses were not six
months delinquent in their payments when Kohl's assigned their debt for collection, the
record shows no evidence the Roses knew of Kohl's internal policy to wait six months
before considering their account sufficiently in default to write it off. This is not
something an average consumer would be aware of; neither would it negate the
contract agreement. A reasonable attorney receiving a client's call that the client was
being harassed by a debt collector would likely consider the client's unpaid account in
default, especially considering the above quoted credit contract language.
Given this landscape, we cannot say it was '''patently clear'" that a FDCPA claim
had '''absolutely no chance of success.'" MacDonald, 80 Wn. App. at 844 (quoting
Oliveri, 803 F.2d at 1275). Moreover, looking at this situation from the consumer's point
FMS's motion for sanctions. Moreover, Mr. Mitchell argued default issues at the
summary judgment hearing. Review is, thus. warranted.
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of view, the consumer would likely perceive a de facto default had occurred and would
not know from Kohl's unstated internal policy that a de jure default had not occurred
under the FDCPA. After all, the consumer was being contacted by a debt collector
specifying it was collecting a debt. In any event, nothing in this record would have
prevented Mr. Mitchell from making the argument he did make at the summary
judgment hearing that for all intents and purposes, the Roses were in default, and were
being treated as though in default. Significantly, we cannot say Mr. Mitchell was
prevented from filing suit and attempting with good faith arguments to extend, modify, or
even establish new law concerning the application of the FDCPA under these
circumstances as permitted by CR 11 (a)(2).
Considering all, we conclude the court lacked tenable grounds to impose CR 11
sanctions. While arguably applying the correct legal standard, a matter not on review
here, the court adopted an unreasonable view in sanctioning Mr. Mitchell. The court did
not make findings in its second opinion letter concerning sanctions. The Roses could
reasonably believe from their contract that their account was in default. While Kohl's
may have internally decided to wait six months to declare their account in default, it did
not inform the Roses. Nevertheless, this litigation extended well past six months after
the Roses's apparent default. As noted, Mr. Mitchell had a good faith basis under CR
11 (a) to believe he was justified in bringing suit to protect his clients. See Bryant .v.
Joseph Tree, Inc., 119 Wn.2d 210, 220, 829 P.2d 1099 (1992) ("The court should
inquire whether a reasonable attorney in like circumstances could believe his or her
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actions to be factually and legally justified."). We cannot say it was patently clear the
Roses's claim had absolutely no chance of success. MacDonald, 80 Wn. App. at 884.
Turning to the trial court's other justifications for sanctions, CR 26(g) partly
provides every discovery request must be signed by the attorney and that the signature,
"constitutes a certification that he has read the request, response, or objection, and that
to the best of his knowledge, information, and belief formed after a reasonable inquiry it
is: (1) consistent with these rules ... (2) not interposed for any improper purpose, such
as to harass or to cause unnecessary delay or needless increase in the cost of
litigation." CR 26(g) further provides, "If a certification is made in violation of the rule,
the court, upon motion or upon its own initiative, shall impose upon the person who
made the certification ... an appropriate sanction."
Under CR 56(g), sanctions including reasonable attorney fees are appropriate
when it appears to the satisfaction of the court that a party submitted an affidavit in bad
faith in a summary judgment proceeding.
Mr. Mitchell challenges the lack of specific findings to support the court's
sanctions under these rules. A trial court's reasons for imposing sanctions should "be
clearly stated on the record so that meaningful review can be had on appeaL" Burnet v.
Spokane Ambulance, 131 Wn.2d 484, 494,933 P.2d 1036 (1997).
Here, the trial court's letter opinion partly stated:
CR 26(g) would require sanctions, since the discovery
violations defendant has claimed plaintiff's counsel
committed are established. Mr. Mitchell did not make the
efforts required by the discovery rules but instead answered
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the interrogatories and requests for admission and
production in an offhand way, in a blatant attempt to thwart
the reasonable discovery efforts of the defendant. And, Mr.
Mitchell promulgated burdensome and unnecessary
discovery in an effort to bully the defendant into a settlement.
CR 56(g) also provides a basis for sanctions with
respect to the materials submitted in regard to the summary
judgment issues, for the reasons stated in the defendant's
motion for this basis.
CP at 998. Soon after, the court filed an order, discussing the reasonableness of the
sanctions but again failed to address the basis of the sanctions. The findings to support
sanctions under CR 26(g) and 56(g) are vague.
Regarding CR 26(g), the court did not explain what "offhand way" means or give
specific examples of thwarting discovery effort attempts. The court does not explain
what actions constituted "bully[ing]." Regarding CR 56(g), the court generally refers to
FMS's brief to set forth how this rule was violated. Without more, we vacate the CR
26(g) and CR 56(g) sanctions because we cannot meaningfully review them as required
in Burnet, and remand to allow, but do not direct, further proceedings. The trial judge
has retired. A new judge will have to, if asked, review the record and assess anew
whether sanctions are warranted under CR 26(g) and CR 56(g); if sanctions are
warranted they would be limited to violations of CR 26(g) and CR 56(g) without
consideration of the CR 11 (a) sanctions rejected above.
Amicus ULA points out the potential chilling effect sanctions may have on pro
bono attorneys' willingness to help low-income consumers in debt litigation. Even so, all
attorneys equally must follow court rules and practice standards. Considering our
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disposition of this appeal, reversing the sanctions and the potential for continued
proceedings below, we decline to address ULA's concerns further.
Because we do not consider Mr. Mitchell's appeal frivolous and he prevails here,
we do not reach FMS's request for attorney fees as a prevailing party under RAP
18.9(a) (frivolous appe'al), CR 11, CR 26(g), and CR 56(g). A frivolous appeal is one
where "there are no debatable issues upon which reasonable minds might differ and it is
so totally devoid of merit that there is no reasonable possibility of reversal." Carlile v.
Harbour Homes, Inc., 147 Wn. App. 193,217, 194 P.3d 280 (2008) (citing State ex rei.
Quick-Ruben v. Verharen, 136 Wn.2d 888, 905, 969 P.2d 64 (1998».
Reversed and remanded.
A majority of the panel has determined this opinion will not be printed in the
Washington Appellate Reports, but it will be filed for public record pursuant to RCW
2.06.040.
Brown, J.
WE CONCUR:
Iftc,J. err- Kulik, J.
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