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FCRA Claims Evade Sovereign Immunity in 7th Cir.

Steven Uhrich

Quick note: SCOTUS denied certiorari review of a Fourth Circuit Court of Appeals decision in Robinson v. United States Dep’t of Educ., 917 F.3d 799 (4th Cir. 2019), cert. denied 590 U. S. __ (U.S. April 20, 2020)(19-512). You can look into that case at SCOTUSblog.

This leaves unresolved a circuit split regarding whether the Fair Credit Reporting Act authorizes consumers to file civil suits against federal governmental agencies under 15 U.S.C. § 1681n and § 1681o.

So, for now, these claims are viable in Illinois, Wisconsin, and Indiana district courts, under Bormes v. United States, 759 F.3d 793 (7th Cir. 2014).

Justice Thomas penned an interesting dissent to the denial, available here.

Because of the Court’s inaction, this disparity will persist. Contrary to the Department’s speculation, this Circuit split shows no signs of resolving itself. In fact, the Seventh Circuit recently reaffirmed its position in Meyers v. Oneida Tribe of Wis., 836 F. 3d 818 (2016). In holding that the FCRA’s general civil enforcement provisions do not abrogate tribal sovereign immunity, the court reaffirmed and distinguished its earlier decision in Bormes, which recognized a waiver of federal sovereign immunity. 836 F. 3d, at 826. In that court’s view, the ordinary meaning of “government,” as used in the FCRA’s definition of “person,” clearly encompasses the Federal Government but does not include Indian tribes. Ibid. Thus, absent intervention from this Court, or a majority of active judges on the Seventh Circuit, the Courts of Appeals will remain in conflict.

Mortgage Still “Valid Debt” Despite Being Unenforceable

Steven Uhrich

Link: Bauer v. RoundPOINT MORTGAGE SERVICING CORPORATION (N.D.Ill Oct. 29 2018).

In seeking to foreclose on Plaintiff’s home, the mortgagee violated the single refiling rule in Illinois that says you can’t re-file the same lawsuit twice. As a result, the mortgage loan became unenforceable as a matter of law. (A recent Illinois Supreme Court Decision, First Midwest v. Cobo, also found this would apply to an action on the promissory note).

The mortgage companies continued to send statements, some demanding payments. Plaintiff, represented by Rusty Payton and Marc Dann of DannLaw, filed suit to quiet title and actions under the Fair Debt Collection Practices Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, and the Illinois Consumer Fraud Act against the mortgage servicer (Roundpoint), the investor, and the foreclosure mill law firm Wirbicki Law Group, LLC.

Judge Virginia M. Kendall found that the debt was still “valid” even though it was legally unenforceable—meaning that many of the claims do not survive.

Although the single refiling rule prevents the defendants from pursuing another foreclosure action, extinguishing their legal remedy, the rule does not extinguish the right to the underlying debt—that remains. See Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1411-12 (2017); Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 684 (7th Cir. 2017), cert. denied, 138 S. Ct. 736 (2018)(explaining that Illinois treats a “debt as a debt” because “[t]he creditor retains the legal right to appeal to the debtor to honor the debt out of a sense of moral obligation even if the legal obligation can no longer be enforced in court”); Owens v. LVNV Funding, LLC, 832 F.3d 726, 731 (7th Cir. 2016) (citing Fleming v. Yeazel,40 N.E.2d 507, 508 (1942) (“[T]he statute of limitations controls the remedy for recovery of the debt, but the debt remains the same as before, excepting that the remedy for enforcement is gone.”)).
Indeed, a creditor retains some right to payment, even if its remedy is no longer a legal one but a moral one. See Buchanan v. Northland Grp., Inc., 776 F.3d 393, 396-97 (6th Cir. 2015) (recognizing that a time-barred “debt remains a debt even after the statute of limitations has run on enforcing” and “[t]here thus is nothing wrong with informing debtors that a debt remains unpaid” and “to let the debtor know what the debt is and to ask her to pay it”); HBLC, Inc. v. Egan, 2016 IL App (1st) 143922 (2016) (citing Huertas v. Galaxy Asset Management, 641 F.3d 28, 32-33 (3d Cir.2011) (noting that “the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts”).
Moreover, a debt once-unenforceable can become enforceable again under certain circumstances. 

However, the Court allowed one claim under the Fair Debt Collection Practices Act and two claims under the Illinois Consumer Fraud Act concerning Roundpoint’s threats to foreclose or legally enforce the mortgage debt.

Debt Collector Wins Summary Judgment on False Threat to Sue

Steven Uhrich

Link: Bandas v. United Recovery Service, LLC, Case No. 17-cv-01323 (N.D. Ill., Sept. 7, 2018).

Plaintiff, represented by Michael Jacob Wood of Community Lawyers Group, Ltd., filed an action under Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., and the Illinois Collection Agency Act (“ICAA”), 225 ILCS 425/1 et seq. Both parties moved for summary judgment and the court ruled in favor of the defendant debt collector.

After incurring a medical debt, URS sent the Plaintiff a letter as follows:

Dear FRANK,
Please receive and accept this letter in the spirit in which it is intended. We do not seek to create a climate of argument and threat but merely to state our position in as factual a manner as possible. Our client claims a debt is due and owing from you; they have attempted to resolve this between them and you with no success. Our office has been brought into the picture and we have done everything we can think of to convince you to pay this claim; our file indicates that you have the means to pay but that you will not pay.
We wish to make this appeal to you as one reasonable party to another. Send us your full payment today or contact this office at once to make suitable payment arrangements so that no further procedures need to be taken in this matter.
This is our third attempt to have you voluntarily resolve this claim. We seek your cooperation now! . . .

Plaintiff  alleged that URS’s letter deceptively threatened him with litigation when it had no intention of actually suing him for the debt, in violation of § 1692e of the FDCPA.  Judge Virginia M. Kendall pointed out that in order to defeat summary judgment a plaintiff must show not only that statement is false but also that it would mislead an “unsophisticated consumer.” See Lox v. CDA, Ltd.,689 F.3d 818, 822 (7th Cir. 2012) (citing Wahl v. Midland Credit Mgmt., 556 F.3d 643, 645-46 (7th Cir.2009)), and that that the representation would be confusing to a “significant fraction of the population.” Gruber v. Creditors’ Prot. Serv., Inc., 742 F.3d 271, 274 (7th Cir. 2014).

Section 1692e cases fall into three categories: (1) “cases involving statements that plainly, on their face, are not misleading or deceptive,” in which courts grant summary judgment in favor of defendants, (2) “cases involve[ing] statements that are not plainly misleading or deceptive but might possibly mislead or deceive the unsophisticated consumer,” in which “plaintiffs may prevail only by producing extrinsic evidence, such as consumer surveys, to prove that unsophisticated consumers do in fact find the challenged statements misleading or deceptive,” and (3) “[c]ases involving plainly deceptive communications” that are “clearly misleading on their face,” in which plaintiff need not present any extrinsic evidence to prevail.

Given that Plaintiff alleges that the statement is deceptive (i.e. in the third category above), he needed to put extrinsic evidence into the record because judges “are not experts in the knowledge and understanding of unsophisticated consumers facing demands by debt collectors” and “are no more entitled to rely on [their] intuitions in this context than [they] are in deciding issues of consumer confusion in trademark cases.” Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 776 (7th Cir. 2007). He did not. As such the court looked to whether the thread of litigation was plain on the face of the letter.

Interestingly, the court discussed how some judges looked to Google and Wikipedia for insight bceause it is reasonable to interpret the plain meaning of language in the same way an unsophisticated consumer would. (Citing McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1021 (7th Cir. 2014) and Holt v. LVNV Funding, LLC, 147 F. Supp. 3d 756, 761 (S.D. Ind. 2015).

Because Plaintiff offered no support for his conclusion that an unsophisticated consumer would automatically assume litigation is the only “further procedure” available to URS, the court granted summary judgment in favor of debt collector URS.