Locke Lord QuickStudy: Debt Collectors Lose Another Northern District of Illinois FDCPA Class Action

March 23, 2018
On March 14, 2018, Judge Jorge Alonso of the United States District Court for the Northern District of Illinois issued a lengthy opinion in McMahon v. LVNV Funding, LLC, 12 C 1410, 2018 WL 1316736, granting summary judgment as to FDCPA liability to the plaintiff class. This is the second recent opinion from the Northern District finding that a debt-collection communication is deceptive on its face and awarding judgment to a class of consumers (the other being Pierre v. Midland Credit Management, Inc., 1:16-cv-02895, 2018 WL 723278 (N.D. Ill. Feb. 5, 2018)). Debt collectors need to be aware of both decisions and calibrate their communications accordingly.

Relevant Facts and Procedural History
In the 1990s, Plaintiff McMahon incurred a debt to Nicor. He last made payment on the debt in 1997. In December 2011, Defendant Tate & Kirlin (T&K) (on behalf of Defendant LVNV Funding, LLC (LVNV), the owner of the debt) sent McMahon a letter seeking to collect the $584.98 outstanding on the Nicor debt (the T&K Letter). The T&K Letter offered McMahon “An Opportunity: We are pleased to extend to you an offer to settle your account in full for $233.99. This represents a savings of 60% off your balance.” The T&K Letter did not indicate that the statute of limitations had run on the Nicor debt.
McMahon filed suit in February 2012 on behalf of himself and a putative class, claiming the T&K Letter is deceptive in violation of the Fair Debt Collection Practices Act (FDCPA). Judge Alonso certified an Illinois class, and the parties filed cross-motions for summary judgment.

Legal Analysis
I.The T&K Letter is deceptive as a matter of law.
Judge Alonso focused his analysis of whether the T&K Letter is deceptive on two recent Seventh Circuit decisions: an earlier decision in the McMahon case, McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014) (McMahon I) and Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679 (7th Cir. 2017). In McMahon I, the Seventh Circuit concluded that McMahon stated a viable FDCPA claim with respect to the T&K Letter because an unsophisticated consumer could be misled by the Letter’s offer to settle the time-barred debt. In Pantoja, the Seventh Circuit held that a dunning letter was deceptive as a matter of law because it (1) failed to warn the consumer that accepting the settlement risked losing the protection provided by the statute of limitations, and (2) indicated that the debt collector “will not” sue on the debt when the statute of limitations meant that the debt collector “could not” sue on the debt. 

Based on those two decisions, Judge Alonso held that the T&K Letter is deceptive as a matter of law; by suggesting that McMahon settle the time-barred debt, T&K implied that it could sue on that debt even though it could not. This is the “very sort of calculated ambiguity that Pantoja held to be deceptive as a matter of law.” Judge Alonso further held that the T&K Letter is deceptive as a matter of law because it did not warn McMahon that accepting the offer could result in the restarting of the statute of limitations. 

II.McMahon and the class have Article III standing.
Deception aside, Defendants argued that McMahon lacked the concrete injury necessary to provide the federal court Article III standing, relying on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). Judge Alonso rejected this claim as well, citing several Northern District and Seventh Circuit opinions holding that a plaintiff has Article III standing solely from receiving an unlawful debt-collection demand. That is different than Spokeo because “[i]n Spokeo, posting inaccurate personal information about the plaintiff on a consumer website may have been a ‘bare procedural violation’ of the Fair Credit Reporting Act, but ‘sending a misleading dunning letter that sought payment on a time-barred debt and lacked disclosures to which [the debtor] was legally entitled’ inflicts exactly the sort of injury Congress sought to prevent….” 

III.Whether LVNV is a debt collector is a question of fact inappropriate for summary judgment.
Judge Alonso also addressed LVNV’s status as a debt collector. In Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017), the Supreme Court held that a company that attempts to collect debts it owns is not one who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another” and thus does not meet that portion of the “debt collector” definition set forth in section 1692a(6) of the FDCPA. LVNV argued that because it purchases debt and then retains other entities to collect it, Henson establishes that it is not a debt collector.

Judge Alonso disagreed. Section 1962a(6) defines a debt collector as either an entity whose “principal purpose” is the collection of debts or an entity that regularly collects debts owed to another. Per Henson, LVNV is not the latter, but it could be the former if its principal purpose is to collect debts. 

In an effort to salvage its summary judgment motion, LVNV pointed to several decisions holding that even under the “principal purpose” prong, a debt owner must itself engage in collection activities, rather than simply retain other entities to pursue the debt, as LVNV claimed to have done with McMahon. Judge Alonso expressed skepticism with those opinions because they appeared to blur the lines between the two distinct “debt collector” definitions. But he ultimately avoided that legal question by finding that LVNV did interact directly with consumers. Despite McMahon offering evidence that “at least 99 percent of LVNV’s gross revenue has been derived from collecting on unpaid consumer debts [owned] by it,” the judge ruled that whether LVNV’s principal purpose was debt collection remained a factual issue for trial.

IV.Additional rulings.
In addition to the key rulings referenced above, Judge Alonso also held that:
  • The deception in the T&K Letter is material because it has the ability to influence an unsophisticated consumer’s decision, even if it did not actually influence the consumer’s decision;
  • Although McMahon and the class are entitled to statutory damages, the amount of statutory damages should be decided by a jury after trial; and
  • All class members must individually prove causation to recover actual damages per section 1692k of the FDCPA, and causation is a factual issue requiring trial.

Ramifications for Debt Collectors
On February 5, 2018, Judge Henry D. Leinenweber from the Northern District of Illinois granted judgment to a class of Illinois consumers, finding that a debt-collection communication that stated that the debt collector “will not” sue to collect a time-barred debt is deceptive because the debt collector “cannot” sue on that debt. Pierre, 2018 WL 723278. The McMahon decision builds upon Pierre. Debt collectors should focus on three main takeaways. 

First, while the T&K Letter did not contain the same “will not sue” language seen in Pierre, Judge Alonso held that the offer to settle the time-barred debt was equally deceptive. He reasoned that in offering to settle the time-barred debt, T&K was implying that it could sue on the debt but was choosing not to, when in fact it was legally barred from doing so. Debt collectors will again have to calibrate their debt-collection communications in light of McMahon.

Second, Judge Alonso continued to marginalize the Spokeo concrete-harm requirement, finding that receipt of a deceptive debt-collection communication is itself a concrete harm, even if no tangible consequence results. Although Judge Alonso made an effort to distinguish that harm from the harm in Spokeo, that effort was not particularly persuasive. The point of Spokeo is that bare statutory violations do not provide Article III standing in the absence of any concrete injury-in-fact. Mere receipt of a deceptive debt-collection communication with no resulting injury would seem to be just such a bare statutory violation. But opinions throughout the Northern District have consistently rejected Spokeo arguments in the context of the FDCPA, and Judge Alonso continued that approach.

Third, Judge Alonso expressed skepticism with those cases holding that an owner of a debt cannot be a “debt collector” unless that debt owner itself actually engages in debt-collection efforts toward the consumer. Although Judge Alonso denied summary judgment because he found that LVNV directly engaged in debt-collection efforts with consumers, debt owners who outsource their debt-collection efforts entirely should be aware of this opinion.

In short, McMahon expands upon Pierre in ways that are unfavorable to debt collectors. Debt collectors should continue to carefully calibrate their correspondence with respect to time-barred debt in response to both decisions.