Purnell v. Arrow Financial Services, LLC.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 08a0761n.06
Filed: December 16, 2008
No. 07-1903
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LESLIE PURNELL,
Plaintiff-Appellant,
On Appeal from the United
v. States District Court for the
Eastern District of Michigan
ARROW FINANCIAL SERVICES, LLC, at Detroit
Defendant-Appellee.
/
Before: GUY and GRIFFIN, Circuit Judges; and WATSON, District Judge.*
PER CURIAM. Plaintiff Leslie Purnell brought this action against defendant
Arrow Financial Services, LLC, alleging that Arrow’s efforts to collect on a long-closed
Montgomery Wards account in his name violated federal and state statutes governing debt
collection practices. Plaintiff’s appeal challenges the district court’s decision, after a
bifurcated trial on some claims, to dismiss the remaining federal claims as barred by the one-
year limitations period set forth in the Fair Debt Collection Practices Act (FDCPA), 15
U.S.C. § 1692k(d). After review of the record and the applicable law, we reverse and
*
The Honorable Michael H. Watson, United States District Judge for the Southern District of Ohio,
sitting by designation.
No. 07-1903 2
remand for further proceedings consistent with this opinion.1
I.
In August 2001, Arrow Financial Services, LLC, a “debt collector” for purposes of
the FDCPA, acquired a portfolio of accounts from GE Capital; including, a several-hundred
dollar debt on an account that plaintiff closed in the 1980s. Arrow sent its first
communication regarding the debt to plaintiff on September 16, 2001; four years before
plaintiff filed suit. Plaintiff disputed the debt in writing on October 9, 2001, stating that it
was the result of fraud and denying that he owed it.
Apparently without verifying the debt, Arrow sent plaintiff five collection letters and
spoke to plaintiff three times over the next three years.2 There is no dispute that the last of
these communications occurred in August 2004, after which Arrow cancelled the account and
discontinued all direct collection efforts. Plaintiff alleged that those communications were
in violation of federal and state law, but later stipulated that he was not pursuing claims
under the FDCPA for any of the direct collection efforts prior to September 1, 2004. There
is no dispute that all of those letters and telephone calls occurred more than one year before
the complaint was filed on September 1, 2005.
This left plaintiff’s FDCPA claims based on the “indirect” collection efforts Arrow
1
The district court also declined to exercise supplemental jurisdiction over Purnell’s state law claims
for violation of the Michigan Occupational Code, Mich. Comp. Laws § 339.901, and the Michigan Debt
Collection Practices Act, Mich. Comp. Laws § 445.252. The dismissal of those claims without prejudice is
not directly challenged on appeal.
2
The letters were sent February 26, 2002, August 26, 2002, October 11, 2002, February 26, 2003,
and August 9, 2004. Arrow spoke to plaintiff on August 23, 2002, October 9, 2002, and August 17, 2004.
No. 07-1903 3
undertook through its reporting of the debt to the credit reporting agency Equifax.
Specifically, Arrow reported the debt on a monthly automated basis both before and after
September 1, 2004. Arrow had been reporting the debt as “disputed,” but admitted that the
debt began being reported without the “dispute marker” in June 2004. That continued to be
the case until July 2005, when, due to the age of the debt, Arrow instructed Equifax to delete
the account from its records. Despite this instruction, and in response to correspondence
from plaintiff, Equifax sent a Consumer Debt Verification (CDV) form to Arrow. Arrow
responded in October 2005 by confirming the debt to Equifax, again without noting that the
debt was disputed. Defendant maintained that the “dispute marker” was inadvertently
dropped from plaintiff’s account in June 2004, during the conversion of defendant’s 22
million accounts to a new credit reporting format.
As mentioned, plaintiff filed this action on September 1, 2005, asserting claims under
the FDCPA and parallel state statutes. Defendant moved for summary judgment on all of the
FDCPA claims, arguing that it had engaged in no “collection activity” within the statute of
limitations period. Defendant withdrew that motion, however, after discovery revealed that
it had continued to report the debt to Equifax within the limitations period. New defense
counsel subsequently filed another motion for summary judgment on statute of limitations
grounds. Although that motion was denied as untimely, the statute of limitations defense
resurfaced in defendant’s pretrial motions. In conferences that followed, the district court
recognized that it was a “threshold” issue that had to be decided before trial and solicited
written submissions from the parties.
No. 07-1903 4
The district court construed the parties’ stipulations and written submissions as a
motion by defendant for judgment as a matter of law under Fed. R. Civ. P. 50(a). As noted,
plaintiff abandoned his FDCPA claims related to Arrow’s direct collection efforts—all of
which occurred outside the limitations period. With respect to the “indirect” collection
activities—reporting the debt to Equifax—defendant took the position that all of such claims
were time-barred because they first occurred outside the limitations period. The district court
surveyed the few district court decisions interpreting the statute, 15 U.S.C. § 1692k(d);
emphasized that the statute “places significance on when a violation is made, not when it is
made known”; and denied the motion with respect to the FDCPA claims based on
defendant’s reporting of the debt to Equifax after September 1, 2004. The district court
specifically noted that there were “at least” two kinds of violations at issue in this
case—failure to communicate that the debt was disputed (15 U.S.C. § 1692e(8)) and falsely
representing the character, amount, or legal status of the debt (15 U.S.C. §
1692e(2)(A))—and concluded that “[e]ach monthly report presented a separate harm to
Plaintiff under the statute and, for that matter, an independent opportunity for Defendant to
comply with the statute.”
After the parties filed a joint final pretrial order, the district court decided to bifurcate
the trial and hear first the claims based on defendant’s admission that it had failed to mark
the debt as disputed in each of the reports made to Equifax after September 1, 2004.
Reporting the debt without the “dispute marker” admittedly violated § 1692e(8), which
prohibits “[c]ommunicating or threatening to communicate to any person credit information
No. 07-1903 5
which is known or which should be known to be false, including the failure to communicate
that a disputed debt is disputed.” What was contested at trial was whether defendant could
establish the bona fide error affirmative defense under 5 U.S.C. § 1692k(c) by showing 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.” At the conclusion
of the one-day bifurcated trial, the jury found that Arrow had proved the defense based on
its claim that the “dispute marker” was inadvertently lost in the conversion of accounts to a
new computerized reporting system. Consequently, the jury found in favor of Arrow as to
each of the eleven monthly reports to Equifax from September 2004 through July 2005, and
as to the one manual confirmation of the debt to Equifax in October 2005.
In a sua sponte order entered within a few days of the verdict, the district court
dismissed the remaining FDCPA claims with prejudice and declined to exercise supplemental
jurisdiction over the state law claims. With respect to the FDCPA claims, the district court
provided the following rationale:
While Plaintiff had advanced to the court a strict liability theory such
that any reporting of a debt that is false runs afoul of FDCPA[, 15 U.S.C. §
1692e(2)], and the theory that Defendant attempted to collect the debt (chiefly
by reporting it to Equifax beginning about 2001) without sending Plaintiff
verification in the wake of Plaintiff’s 2001 letter disputing the obligation, the
court has not been persuaded that either theory can be supported against the
clear time-bar imposed by the FDCPA. Even if it were true that the debt was
erroneously attributed to Plaintiff, the FDCPA does not sweep as broadly as
Plaintiff argues. Plaintiff has presented no binding authority stating that the
FDCPA imposes strict liability upon debt collectors. Indeed, if such a rule
were applied, there would seem to be no place for the bona fide error defense
the parties have so vigorously litigated. The verdict of the jury leaves
undisturbed only Plaintiff’s claims under Michigan law.
No. 07-1903 6
(Footnote omitted.) Judgment was entered accordingly. Plaintiff filed a motion for judgment
as a matter of law challenging the bona fide error defense—the denial of which is not at issue
in this appeal. Plaintiff does appeal, however, from the denial of his motion to alter or amend
judgment to allow him to proceed to trial on the dismissed FDCPA claims. This timely
appeal followed.
II.
On appeal, plaintiff seeks reinstatement of the FDCPA claims dismissed without trial
that are based on the reports made to Equifax within the limitations period. Although the
above-quoted passage provides the only articulation of the basis for the dismissal, it is
nonetheless apparent that the district court concluded, presumably under Fed. R. Civ. P. 50(a)
or 56(c), that Arrow was entitled to judgment as a matter of law because the remaining
FDCPA claims were barred by the statute of limitations. When, as here, the appeal is from
both the grant of summary judgment and the denial of a Rule 59(e) motion to reconsider that
decision, our review is de novo. Smith v. Wal-Mart Stores, Inc., 167 F.3d 286, 289 (6th Cir.
1999). Moreover, a determination that a claim was filed outside the applicable statute of
limitations is a conclusion of law that is also reviewed de novo. Tolbert v. State of Ohio
Dep’t of Transp., 172 F.3d 934, 938 (6th Cir. 1999).
The FDCPA is a broad statute aimed at eliminating the use of abusive, deceptive, and
unfair debt collection practices by debt collectors. 15 U.S.C. § 1692(a); Harvey v. Great
Seneca Fin. Corp., 453 F.3d 324, 329 (6th Cir. 2006). The statute provides that an action to
enforce liability under the FDCPA may be brought “within one year from the date on which
No. 07-1903 7
the violation occurs.” 15 U.S.C. § 1692k(d). The focus, as the district court observed, is on
when the violation occurred. The district court seemed to conclude, at least initially, that the
FDCPA claims alleging that the reports to Equifax after September 1, 2004, were not barred
by the statute of limitations. Indeed, nothing in the order of dismissal expressed a retreat
from or reconsideration of that view.
Similarly, several other district courts have held that the plaintiff’s FDCPA claims
were not time barred to the extent that they alleged a discrete violation of the FDCPA within
the limitations period. Accord McCorriston v. L.W.T., Inc., 536 F. Supp. 2d 1268, 1272
(M.D. Fla. 2008); Kaplan v. Assetcare, Inc., 88 F. Supp. 2d 1355, 1360 (S.D. Fla. 2000);
Pittman v. J.J. MacIntyre Co., 969 F. Supp. 609, 611 (D. Nev. 1997). As the court in
McCorriston explained, the fact “[t]hat Defendants sent a dunning letter outside the
limitations period does not render Plaintiff’s FDCPA claim time-barred, where, as here,
Plaintiff has alleged a discrete violation within the limitations period.” 536 F. Supp. 2d at
1272; see also Sierra v. Foster & Garbus, 48 F. Supp. 2d 393, 395 (S.D.N.Y. 1999) (holding
claim time barred because it was “not a case where defendants have sent a series of
threatening letters, each of which violate the FDCPA and only some of which are time-
barred”).3
This court has not addressed this precise issue, but these decisions are consistent with
3
Defendant argued that all the FDCPA claims were time barred because the violations first occurred
outside the limitations period. The district court rejected this position, declining to follow another court’s
conclusion that a § 1692e(8) claim accrued shortly after the plaintiff sent a letter disputing the debt. See
Wilhelm v. Credico, Inc., 455 F. Supp. 2d 1006, 1008-09 (D.N.D. 2006), aff’d in part on other grounds, 519
F.3d 416, 418 (8th Cir. 2008) (affirming summary judgment for Credico because there was no evidence that
any credit information was communicated to anyone within the one-year limitations period).
No. 07-1903 8
the principles articulated in assessing the timeliness of Title VII claims, which require that
a charge be brought within a specified period after the alleged unlawful practice occurred.
Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002); Ledbetter v. Goodyear Tire &
Rubber Co., 127 S. Ct. 2162 (2007). The Court in Morgan explained that “discrete
discriminatory acts are not actionable if time barred, even when they are related to acts
alleged in timely filed charges.” 536 U.S. at 113. Presumably in recognition of the first of
these principles abrogating a “serial violation” exception to the statute of limitations, plaintiff
abandoned all FDCPA claims based on collection activities and reports to Equifax that
occurred prior to September 1, 2004. Id. at 114 (rejecting “serial violation” as basis for
imposing liability for acts outside the limitations period where at least one discrete act
occurred within the limitations period).
The Court in Morgan also explained, however, that a defendant’s prior acts do “not
bar employees from filing charges about related discrete acts so long as the acts are
independently discriminatory and charges addressing those acts are themselves timely filed.”
536 U.S. at 113. As the decision in Ledbetter makes clear, the violation must occur within
the limitations period, not just be the later effects of an earlier time-barred violation.
Ledbetter, 127 S. Ct. at 2169. In that case, also a Title VII action, the Court held that the
lesser paychecks plaintiff received within the limitations period were not themselves acts of
intentional discrimination, but were alleged to be the effects of prior discriminatory acts that
occurred outside the limitations period.
The question for us, then, is whether the district court was correct that only the §
No. 07-1903 9
1692e(8) claims alleged discrete violations of the statute occurring within the limitations
period. Trial was held on the claims that defendant violated §1692e(8) by “communicating”
credit information known to be false; specifically, “the failure to communicate that a disputed
debt is disputed.” Plaintiff argues that dismissal of the remaining FDCPA claims was in
error because he asserted other timely claims—apart from the “dispute marker”
failures—based on the reports to Equifax within the limitations period. Specifically, plaintiff
argues that the reports violated the FDCPA not only because they were made without the
“dispute marker,” but also because (1) the underlying debt was the result of fraud and not
authorized by him, and (2) defendant continued its collection activities without first
validating the debt. We address these arguments in turn.
A. 15 U.S.C. § 1692e(2), § 1692e(8), and § 1692f(1)4
Plaintiff seeks to reinstate FDCPA claims based on the allegation that the debt was
not actually owed by him or authorized by the credit agreement. Specifically, Arrow
maintained that the debt arose from plaintiff’s failure to pay for service contracts on
merchandise, while plaintiff responded that he could prove that he declined the service
contracts. The district court did not reach the merits of these claims, and neither do we.
On appeal, plaintiff pursues this theory under three provisions of the FDCPA which
prohibit false representations of the “character, amount, or legal status of any debt,” 15
U.S.C. § 1692e(A); the communication or attempted communication of credit information
4
Although defendant also argues that plaintiff may not object to dismissal of plaintiff’s “newly
minted” § 1692e(10) claims, plaintiff has not argued for reinstatement of separate claims under § 1692e(10)
(prohibiting “[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”).
No. 07-1903 10
that is known or should be known to be false, 15 U.S.C. § 1692e(8); and the collection of any
amount not expressly authorized by the credit agreement, 15 U.S.C. § 1692f(1). Defendant
misapprehends the issue in characterizing plaintiff’s argument to be that the original reports
of the disputed debt tainted all subsequent conduct. Plaintiff’s contention is that the violation
occurs with each representation, communication, or collection activity such that each would
constitute a discrete violation of the FDCPA. It is not the taint of the original decision to
report the debt, but the repeated reporting of the debt within the limitations period that is the
basis for plaintiff’s claims.
To the extent that these violations are alleged to have occurred outside the limitations
period, they are barred by the statute of limitations. But, to the extent that plaintiff can prove
that such violations occurred within the limitations period, they are not time-barred.
B. 15 U.S.C. § 1692g(b)
Next, plaintiff seeks to reinstate his claims that defendant violated 15 U.S.C. §
1692g(b) by reporting the debt to Equifax within the limitations period without first
validating the debt. Section 1692g(a) requires that the debt collector provide certain written
notices within five days of the initial communication to the consumer. Fed. Home Loan
Mortgage Corp. v. Lamar, 503 F.3d 504, 508 n.3 (6th Cir. 2007). Those notices are to
include notice that the debt will be assumed to be valid if the consumer does not dispute the
debt within 30 days of receiving the notice. 15 U.S.C. § 1692g(a)(4). If the consumer
disputes the debt within the 30-day period, § 1692g(b) provides, in part, that “the debt
collector shall cease collection of the debt . . . until the debt collector obtains verification of
No. 07-1903 11
the debt or a copy of a judgment . . . and a copy of such verification or judgment . . . is
mailed to the consumer by the debt collector.”
Here, the initial communication for purposes of § 1692g occurred in September 2001,
and plaintiff apparently sent correspondence disputing the debt in October 2001. We assume
for purposes of this appeal both that plaintiff’s correspondence obligated defendant to cease
collection of the debt until the debt was verified, and that defendant did not obtain
verification of the debt before proceeding with its collection efforts. It seems that the district
court dismissed claims for violation of § 1692g(b) on the grounds that any violation occurred
when the defendant first undertook collection activities in the wake of plaintiff’s October
2001 letter.
Unlike the notice requirements of § 1692g(a), however, there are no time limits for
a debt collector to validate the debt under § 1692g(b). In fact, § 1692g(b) does not require
the debt collector to validate the debt at all, as long as it ceases any collection activity. Smith
v. Transworld Sys., Inc., 953 F.2d 1025, 1031 (6th Cir. 1992). That is, the debt collector has
a choice: it either may choose not to verify the debt and abandon its collection efforts, or it
may decide to verify the debt and resume collection activities once the requested validation
has been provided. Jang v. A.M. Miller & Assocs., 122 F.3d 480, 483 (7th Cir. 1997). We
find that the language of § 1692g(b) dictates that each “failure to cease” collection activity
without having validated the debt—like each “communication” of false credit information
under § 1692e(8)—presents a discrete claim for violation of the FDCPA such that only those
No. 07-1903 12
collection activities taken outside the limitations period would be time-barred.5
Defendant argues that even if not time-barred, plaintiff’s § 1692g(b) claims were
“futile” because it would be irreconcilable for a court to find a debt collector violated §
1692g(b) for reporting a disputed debt, when § 1692e(8) authorizes a debt collector to report
an account as disputed. This misstates the § 1692g(b) claims, which allege that defendant
reported the debt without first providing the requested validation. Once validation is sent to
the consumer, § 1692g(b) is no longer an impediment to collection activities. The FTC’s
Opinion Letter touches on the intersection of these provisions, suggesting that although
reporting a disputed debt without first validating the debt violates § 1692g(b), “if a dispute
is received after a debt has been reported to a consumer reporting agency, the debt collector
is obligated by Section 1692e(8) to inform the consumer reporting agency of the dispute.”
We are not persuaded that the obligation to inform the credit agency that a reported debt is
disputed relieves a debt collector from any potential liability for violations of § 1692g(b).
This is particularly true since it will always be the case that a § 1692g(b) claim involves a
disputed debt.
Finally, Arrow contends that we may affirm dismissal of these claims on other
grounds, including that plaintiff waived such claims by not pleading them, not seeking leave
to amend the complaint, or not presenting evidence by way of an offer of proof at trial.
5
We assume without deciding that the reporting of the debt to Equifax constitutes a “collection
activity.” See FTC Staff Opinion Letter, 1997 WL 33791232 (F.T.C.) (Dec. 23, 1997) (opining that it is not
permissible under the FDCPA for a debt collector to report, or continue to report, a consumer’s charged-off
debt to a consumer reporting agency after the debt collector has received, but not responded to, a consumer’s
written dispute during the 30-day validation period under § 1692g).
No. 07-1903 13
While it is true that the complaint does not assert claims for violation of § 1692g(b), the joint
final pretrial order included among plaintiff’s claims “[c]ollection of the debt without
validation following a validation request or dispute, in violation of both state and federal
laws.” Also, plaintiff was prevented at trial from asserting the § 1692g(b) claims in response
to the bona fide error defense apparently because the court believed them to be time-barred.
We decline to reach these issues because the district court should have the opportunity to
determine in the first instance whether plaintiff should be prevented from pursuing the §
1692g(b) claims for any of these reasons.
Because we find it was error to conclude that the remaining FDCPA claims based on
the reports to Equifax after September 1, 2004, were barred by the statute of limitations, we
REVERSE and REMAND for further proceedings consistent with this opinion.