Consumers entitled to statutory damages against debt collector who misidentified creditor behind debts, court rules

by Eric Pearson

The Fair Debt Collection Practices Act (FDCPA) provides that “any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person” for statutory “damages as the court may allow, but not exceeding $1,000” and “the costs of the action, together with a reasonable attorney’s fee as determined by the court.” 15 U.S.C. § 1692k(a). Among the provisions of the Act, “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” I15 U.S.C. § 1692e.

David Tourgeman bought a Dell computer. At the time, he lived in Mexico and had the computer shipped to his parents in Mexico. Tourgeman financed it through Dell Financial Services, which arranged for a loan to be originated by CIT Online Bank.

Tourgeman says he completed repayment within two years but Dell Financial’s records reflected otherwise. The allegedly outstanding debt therefore was charged off and then sold, along with more than 85,000 other Dell Financial debts, to Collins Financial Services. Collins transferred the file along with the other Dell Financial accounts to its affiliated collection agency, Paragon Way, Inc.

Paragon Way mailed three letters to Tourgeman encouraging him to pay off the alleged debt. The file was then referred to a law firm which sent another letter. All of these letters were actually mailed to Tourgeman’s parents’ address in California. Tourgeman was still in Mexico and did not receive the letters.

The law firm handling the file for Paragon Way then filed a collection action against Tourgeman in state court. Tourgeman’s parents forwarded the lawsuit to him in Mexico. During the state court litigation, Tourgeman learned of the several letters that had been mailed to him at his parents’ addresses.

Tourgeman filed a class action lawsuit suit in federal district court, alleging that Collins, Paragon Way, and the law firm involved, Nelson & Kennard, had violated the FDCPA. The federal district court certified a class but ultimately granted judgment in favor of the defendants. Tourgeman appealed. The Ninth Circuit has now reversed the district court and held that judgment should be entered in favor of Tourgeman and the class members. Tourgeman v. Collins Financial Services, No. 12–56783 (9th Cir. June 25, 2014).

The main claim for relief asserted on appeal by Tourgeman was based on the fact that the defendants’ collection letters and state court complaint falsely identified the original creditor as “American Investment Bank, N.A.,” when, in actuality, CIT Online Bank originated the loan. Tourgeman contended that this misidentification violated the Act’s prohibition on the “use [of] any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e.

The defendants argued that Tourgeman lacked standing to assert any claims based on the collection letters because Tourgeman admitted that he never received the letters when they were sent. According to the defendants, consumers who never receive the offending communication have suffered no injury in fact.

Article III of the Constitution limits federal-court jurisdiction to “Cases” and ‘Controversies.’ The requirement of “standing” flows from this limitation.

To possess standing, a plaintiff must have suffered an “injury in fact,” meaning an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. There must be a causal connection between the injury and the conduct complained of and it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

However, the Supreme Court has recognized that the injury required by Art. III may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing. In short, the violation of a statutory right is usually a sufficient injury in fact to confer standing to bring a claim under the statute in question.

Tourgeman argued—and the Ninth Circuit agreed—that the alleged violation of a statutory right granted by the DTCPA was sufficient to confer standing:

Although Tourgeman could not have suffered any pecuniary loss or mental distress as the result of a letter that he did not encounter until months after it was sent—when related litigation was already underway—the injury he claims to have suffered was the violation of his right not to be the target of misleading debt collection communications. The alleged violation of this statutory right … constitutes a cognizable injury under Article III. […] The alleged violation of Tourgeman’s statutory rights stems solely from the defendants’ having mailed to him their collection letters, and that injury would be redressed by an award of statutory damages, which the FDCPA makes available to prevailing consumers. See 15 U.S.C. § 1692k(a)(2) (providing for “additional damages”). We conclude, therefore, that Tourgeman has constitutional standing.

The court of appeals also agreed with Tourgeman that the defendants violated the FDCPA regardless of whether he actually received the offending letters and state court complaint. Paragon Way sent three letters and the law firm filed a complaint that falsely identified the original creditor as “American Investment Bank, N.A.” when in fact it was CIT Online Bank. The Ninth Circuit found that the defendants violated the DTPCA by falsely identifying the consumer’s original creditor. The court of appeals held that a debt collector who addresses a misleading dunning letter to a consumer as a means of collecting that consumer’s debt “use[s]” an unlawful practice “with respect to” the consumer, regardless of whether some interceding condition—such as non-receipt of the letter, or the consumer’s failure to read it, or the fact that the consumer is savvy enough not to be misled by it—renders the practice ineffective.

The Ninth Circuit found that, in the context of debt collection, the identity of a consumer’s original creditor is a critical piece of information, and therefore its false identification in a dunning letter would be likely to mislead some consumers in a material way. For example, the consumer might engage in a fruitless attempt to investigate the facts of this non-existent debt, in a responsible effort to determine how to most effectively respond to the collection notice. The consumer might contact the creditor (falsely) identified in the letters to obtain background information so that he can remember what had earlier transpired, or to obtain any records that the bank holds pertaining to his debt so that he can prove he already had paid it off, if he believes such is the case. Of course, the wrongly-identified creditor would have no record of any such loan agreement. The court of appeals noted that “confusion and delay in trying to contact the proper party concerning payment on [the] loan” is precisely the kind of infringement of the consumer’s best interests that the FDCPA seeks to combat. Tourgeman v. Collins Financial Services.

Accordingly, the Ninth Circuit reversed the judgment of the district court granting judgment to Paragon Way and Nelson & Kennard. The court of appeals held that judgment should instead be entered for Tourgeman, and this the class members as well, against Paragon Way and Nelson & Kennard. Id.

Victim of unfair debt collection practices?

The Fair Debt Collection Practices Act prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you. Debt collectors include collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them.

The Fair Debt Collection Practices Act applies to personal, family, and household debts. Examples of debts covered by the Act include money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage.

Consumers have the right to sue a debt collector in state or federal court within one year from the date the law was violated. The court can require the collector to pay the consumer for any damages suffered because of the illegal collection practices like lost wages and medical bills. The court can also require the debt collector to pay up to $1,000 for a violation, even if the consumer cannot prove that he or she suffered actual damages. Consumers can also be reimbursed for their attorney’s fees and court costs.

A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000 or one percent of the collector’s net worth, whichever amount is lower. To be successful in a political and legal climate that has become increasingly hostile toward class action lawsuits, class action clients need educated, experienced attorneys like those at Heygood, Orr & Pearson.

We have the experience and knowledge to guide our clients through class action litigation from beginning to end. And we have the financial resources to help them stand toe-to-toe with some of the biggest corporations in the world through what is often a lengthy, complicated and expensive process. Heygood, Orr & Pearson has represented individuals in class actions involving securities fraud, consumer protection law violations and unfair wage claims

If you think a debt collector has violated the law, please contact us today for a free consultation to learn more about your legal rights and options. You can reach us by calling toll-free at 1-877-446-9001 or by filling out our free online contact form.