6th Circuit Joins 2nd and 9th with Expansive Reading of TCPA
Allan v. Pa. Higher Educ. Assistance Agency, No. 19-2043, 2020 U.S. App. LEXIS 23935 (6th Cir. July 29, 2020)
The U.S. Court of Appeals for the Sixth Circuit recently affirmed summary judgment in favor of plaintiffs alleging violations of the federal Telephone Consumer Protection Act (TCPA) for calls placed by their student loan servicer to their cell phones using an alleged automatic telephone dialing system (ATDS) after they revoked consent to receive such calls.
A borrower and co-signor (“borrowers”) on a student loan consented to receive calls on their cell phones at the time they submitted a forbearance request. The borrowers subsequently requested that the loan servicer stop calling. Despite their requests, the servicer subsequently placed a combined 353 of allegedly automated calls to the borrowers on a near-daily basis and left at least 30 voicemails.
The borrowers filed suit against the servicer alleging that the calls violated the TCPA, 47 U.S.C. § 227, et seq. The trial court granted judgment in favor of the borrowers and awarded damages in the amount of $176,500. The servicer appealed.
The TCPA generally prohibits unconsented-to calls or texts placed by an automatic telephone dialing system (ATDS) which it defines as “equipment which has the capacity – (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1).
Interpretation of the TCPA’s definition of an ATDS was the lone issue presented on appeal.
The Sixth Circuit acknowledged a split of opinions between circuits as to whether “stored-number dialer systems” that do not randomly or sequentially generate numbers to dial but place calls from a stored list of numbers, are covered by the TCPA.
The Ninth and Second Circuits have held that stored-number systems are covered under the TCPA, while the Seventh and Eleventh have gone the other way. See Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1052 (9th Cir. 2018); Duran v. La Boom Disco, Inc., 955 F.3d 279, 2020 WL 1682773 (2d Cir. Apr. 7, 2020); Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 460 (7th Cir. 2020); Glasser v. Hilton Grand Vacations Co., 948 F.3d 1301, 1304–05 (11th Cir. 2020).
The Sixth Circuit also noted that it could not turn to the FCC’s orders for guidance on this issue, as they were invalidated by the D.C. Circuit’s ruling in ACA Int’l v. Fed. Commc’ns Comm’n, 885 F.3d 687, 700 (D.C. Cir. 2018). Thus, the Sixth Circuit was compelled to interpret the language by giving the words used their ordinary meaning, and by looking at the language and design of the statute as a whole. In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710, 717-718 (6th Cir. 2019).
The Sixth Circuit analyzed three potential readings of the statutory definition of an ATDS.
The first reading, applying the phrase “using a random or sequential number generator” to modify both to “store” and “produce,” would not qualify the servicer’s phone system as an ATDS because it did not store numbers using a random or sequential number generator, but instead using some other type of device. Acknowledging that this reading follows proper grammar, the Sixth Circuit concluded that this reading was too narrow and problematic, essentially creating a loophole by allowing companies to avoid the autodialer ban by transferring numbers from the number generator to a separate storage device, and then dialing from that separate device.
The court noted, however, that the Seventh and Eleventh Circuits accepted the first reading, though “imperfect,” as the best reading considering the administrative and legislative history of the TCPA and practical effects of a more expansive interpretation of an ATDS (Glasser, 948 F.3d at 1306, 1308–11; Gadelhak, 950 F.3d at 467, 468).
A second reading that “using a random or sequential number generator” could apply to “produce” only, would qualify the servicer’s system as an ATDS because it stored numbers and dialed s them. However, that reading would leave “to store,” a transitive verb, lacking a direct object, requiring adding the phrase “telephone numbers to be called” after “store” for it to make grammatical sense. The court believed such significant modification rendered this reading “unworkable.”
A third proposed reading offered in the dissent, in which “using a random or sequential number generator” modifies the phrase “telephone numbers to be called,” was also deemed problematic by the Sixth Circuit as requiring a strained reading of “store,” and introducing “superfluity” into the statute.
Ultimately, the Sixth Circuit agreed with the Ninth’s Circuit’s assessment in Marks that the autodialer definition, viewed in isolation, was “ambiguous on its face” and required an examination of the structure and context of the autodialer ban as a whole. Marks, 904 F.3d at 1051.
Viewing the larger context of the autodialer ban, because the autodialer ban contains an exception for calls “made with the prior express consent of the called party” § 227(b)(1)(A), the Sixth Circuit reasoned that consenting recipients’ provided numbers are stored by the calling entity on a list. See Marks, 904 F.3d at 1051; Glasser, 948 F.3d at 1316. Thus, the call is dialed using a stored number, not one randomly generated, and an exception for consented-to calls implies that the autodialer ban otherwise could be interpreted to prohibit consented-to calls.
By this logic, the Sixth Circuit deduced that the TCPA’s consent exception implies that the autodialer ban applies to stored-number systems.
The Court further noted that this rationale is consistent with Congress’s 2015 amendment to the TCPA to exempt use of an ATDS to make calls “solely to collect a debt owed to or guaranteed by the United States.” Although that exception was recently struck down by the Supreme Court because it “impermissibly favored [government-]debt-collection speech over political and other speech, in violation of the First Amendment,” the Sixth Circuit reasoned that the now-defunct government debt collection exception implies that the autodialer ban covers stored-number systems. See Barr v. Am. Ass’n of Political Consultants, 140 S. Ct. 2335 (2020)
Lastly, addressing the Eleventh Circuit’s concern that a more expansive interpretation of the term “store” would subject everyday use of smartphones to the purview of the TCPA (Glasser, 948 F.3d at 1309), the Sixth Circuit stated that any such concern was unfounded and rendered moot by the D.C. Circuit’s rejection of the FCC’s interpretation of section 227(a)(1). ACA Int’l 885, F.3d at 700.
In sum, using the related provisions of the autodialer ban as guidance of how to interpret section 227(a)(1), the Sixth Circuit concluded that the definition of an ATDS should be read as: “An ATDS is “equipment which has the capacity— (A) to store [telephone numbers to be called]; or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”
This reading, joining the Second and Ninth Circuit, led the Sixth Circuit to conclude that the loan servicer’s stored-number dialing system qualified as an ATDS. Accordingly, summary judgment in the borrowers’ favor was affirmed.
7th Cir. Holds Separately Reporting Medical Debts Not ‘Unfair or Unconscionable’ Under FDCPA
Zablocki v. Merchs. Credit Guide Co., No. 19-2045, 2020 U.S. App. LEXIS 23737 (7th Cir. July 28, 2020)
The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of consumers’ claims, holding that that a debt collector’s separate, rather than aggregate, reporting of medial debts did not violate the federal Fair Debt Collection Practices Act (FDCPA).
A medical services provider administered x-rays and billed the services to a patient (“consumer 1”). After the consumer’s insurance provider covered some of the costs, amounts due to the provider remained outstanding. The provider eventually retained a debt collector who reported the consumer’s four outstanding debts for separate x-ray charges to a consumer reporting agency (CRA) after two years of unsuccessful collection attempts.
A similarly situated patient (“consumer 2”) received medical services from a different provider and was also eventually referred to the debt collector for collection. After two years passed without collecting the debts, the debt collector reported consumer 2’s 10 outstanding debts to the CRA for the unpaid medical service charges.
Consumer 1 filed suit in federal court alleging that the debt collector’s reporting of the obligations separately, rather than aggregated, violated §§ 1692e(2)(A) and 1692f of the FDCPA. Shortly after the consumer’s complaint was filed, the Seventh Circuit held in Rhone v. Medical Business Bureau, LLC, 915 F.3d 438 (7th Cir. 2019), that reporting debts separately, rather than aggregated, does not misrepresent the “character” of a debt in violation of 1692e(2)(A). Accordingly, consumer 1 filed an amended complaint with consumer 2 (collectively, “consumers”) dropping the 1692e claim and asserting only a violation of section 1692f.
The trial court granted the collector’s motion to dismiss and the consumers appealed.
On appeal, the consumers argued that the debt collector’s reporting of separate amounts on each medical-service charge was “unfair or unconscionable” in violation of § 1692f and supposedly lowered their credit scores to an extent greater than if the charges were reported in aggregate.
The Seventh Circuit initially noted a discrepancy between the consumers’ allegations that they each owed a “single debt” to a “single medical provider,” and their acknowledgment that the FDCPA defines “debt” on a per-transaction rather than a per-creditor basis. 15 U.S.C. 1692a(5). The consumers further acknowledged that the obligations reported to the CRA corresponded to individual medical-service charges, and their credit report documents reflect each charge with separate dates when the debt was placed for collection and when they will be removed from the report.
Thus, the Seventh Circuit rejected the consumers’ allegations that the separately reported obligations owed to each medical-service provider comprised a “single debt”, as defined under the FDCPA. In Rhone, $60 co-pays per physical therapy session, which added up to $540 owed to a creditor, constituted nine debts of $60 each.
The Court next addressed the consumers’ allegations concerning their tradelines and accounts. Specifically, consumer 1 claimed that the debt collector reported his unpaid charges as separate “accounts,” and that for both consumers’ debts the separate reporting of unpaid charges caused their credit reports to display multiple “tradelines,” instead of a single “tradeline” and total sum owed to a creditor.
Because the terms used by the CRA are not specifically defined under the FDCPA, the consumers’’ claims therefore rested upon whether § 1692b’s prohibitions against “unfair or unconscionable” debt-collection practice requires collectors, when reporting debts to a consumer reporting agency, to aggregate together multiple debts owed to a single creditor.
The FDCPA does not define “unfair” or “unconscionable,” and the eight enumerated examples of “unfair or unconscionable means” to collect or attempt to collect a debt do not address separate-versus-aggregate reporting. The FDCPA specifies that the examples do not “limit the general application” of what might constitute “unfair or unconscionable means” to collect a debt, leaving the full list of permissible applications unannounced.
The consumers argued that the seventh and eighth examples under 1692f, prohibiting “[c]ommunicating with a consumer regarding a debt by post card” and “[u]sing any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram,” support their theory and show that the debt collector’s separate reporting of debts falls within the general provision’s reach.
However, the Seventh Circuit rejected the consumers’ arguments that these examples relate to a person’s image or credit reputation, and that listing the obligations separately makes a consumer looks less creditworthy.
Viewing the debt collector’s separate reporting of debts from the perspective of an unsophisticated but reasonable consumer, the Court concluded that the alleged conduct fell outside the scope of “unfair” or “unconscionable” based on the terms’ ordinary meanings, and it was reasonable, and perhaps preferable to certain consumers that a collector individually report debts that correspond to different charges to truthfully communicate the amount owed on each debt.
Accordingly, the trial court’s dismissal of the consumers’ complaint for failure to state a claim under section 1692f of the FDCPA was affirmed.
U.S. Supreme Court’s Recent TCPA Decision Provides New Protection for Debt Collection Communications
Barr v. Am. Ass’n of Political Consultants, 140 S. Ct. 2335 (2020)
The U.S. Supreme Court recently decided that a fix was needed to the federal Telephone Consumer Protection Act (TCPA), but its decision provides no TCPA relief for legitimate businesses that use technology to communicate with their customers.
The petitioners were political polling firms seeking to have the TCPA declared unconstitutional. They complained that while the TCPA prohibited them from calling cell phones and making texts to poll or to transmit “get out the vote” messages, it permitted calls and texts to cell phones for communications seeking to collect debt either owed to or backed by the United States. Because the TCPA drew this “content-based” distinction, it violated First Amendment free speech protections.
The Supreme Court agreed and affirmed the Fourth Circuit Court of Appeals decision finding that the federal debt exception was unconstitutional but salvaged the TCPA by severing the offending exception. The TCPA survives and for legitimate businesses seeking relief from TCPA-fueled litigation, this is no win.
The decision did not provide guidance on the technology that would qualify as an automatic telephone dialing system or on other frequently litigated TCPA issues. What the ruling did do is bolster protection of debt collection activity, particularly debt collection communications.
Four separate opinions were filed revealing a deep divide over whether debt collection communications are a type of speech that requires the highest level of protection from government restriction.
A majority of the Court (Chief Justice Roberts and Justices Alito, Gorsuch, Kavanaugh and Thomas) treated the government debt exemption as “content-based,” requiring it to be judged by a more rigorous test of “strict scrutiny,” which presumes the restriction is unconstitutional.
Earlier decisions would typically not apply strict scrutiny to “commercial speech,” speech primarily motivated by an economic activity. The plurality opinion treats debt collection communications as much more than “a particular economic activity.” Rather, a law that regulates “speaking about a particular topic,” even if it happens to be debt collection, is subject to the strict scrutiny test (emphasis in the original).
Justice Breyer disagreed and wrote that “regulation of debt collection . . . has next to nothing to do with the free marketplace of ideas or the transmission of the people’s thoughts and will to the government.” It is no more than “commercial regulation,” as such it is not subject to strict scrutiny analysis. “To apply the strictest level of scrutiny to the economically based exemption here is thus remarkable,” he added.
Restrictions on content regulation and the application of strict scrutiny, he wrote, should be applied only when a law is “used as a method for suppressing particular viewpoints or threatening the neutrality of a traditional public forum.” While debt collection does implicate speech and the exception for government debt to the disadvantage of private debt is a “speech-related harm,” the harm is “modest” and serves an important public objective. It would survive the less intrusive “intermediate scrutiny standard” which does not carry the presumption that the regulation is unconstitutional.
Justices Ginsburg, Kagan and Sotomayor agreed that debt collection regulation should not be treated as regulation of “content-based” speech.
In the end, the plurality opinion treats debt collection communications as much more than “a particular economic activity.” Rather, a law that regulates “speaking about a particular topic,” even if it happens to be debt collection, is subject to the strict scrutiny test (emphasis in the original). Accordingly, this TCPA ruling may very well serve as a basis to challenge extraordinary debt collection restrictions from a growing number of states in the years to come.
4th Cir. Holds New Statute of Limitations Applies to Each FDCPA Violation
Bender v. Elmore & Throop, P.C., 963 F.3d 403 (4th Cir. 2020)
Joining similar rulings by the Eighth and Tenth Circuits, the U.S. Court of Appeals for the Fourth Circuit recently held that each violation of the FDCPA gives rise to a separate claim governed by its own statute of limitations period.
On April 16, 2016, the homeowner plaintiffs received a notice from a law firm retained by their homeowner association (HOA) stating the homeowners failed to pay $77.09 in HOA assessments and demanded $1,000 to satisfy both the HOA assessments and the costs and attorneys’ fees.
The homeowners disputed the debt and mailed a letter to the law firm with copies of cancelled checks. Additional letters were exchanged with the homeowners denying any late payments and the law firm insisting that late fees, costs, interest, and attorneys’ fees were owed. The law firm acknowledged that the disputed payments had been received but asserted the homeowners still owed the costs and attorneys’ fees.
On May 18, 2016, following another demand for payment, the homeowners delivered a letter to the law firm “requesting that [it] stop contacting us about this claim” and stating that the [homeowners] would consider “any further attempt to collect a debt against us or record a lien on our property [as] harassment[.]”
In January 2017, the homeowner hand-delivered a payment at the annual HOA meeting and was told to leave. The homeowner later received a notice that he had been banned from the HOA’s premises for one year.
In February 2017, the homeowners received another letter from the law firm acknowledging receipt of the January 2017 payment, but noted as outstanding the accumulated fees and costs associated with the original disputed payment from 2016.
On March 10, 2017, the homeowners responded to the February letter, writing that “in our correspondence to you on this matter, we had requested that you stop contacting us about that claim . . . As both my wife and I dispute the debt referenced in your most recent letter, I am now requesting once again that you stop all communications with my wife and myself concerning this debt.” The homeowners received additional correspondence from the law firm on March 14, 2017, including an updated ledger of the homeowners’ account showing that a fee had been added for preparation of the February letter.
In January 2018, the homeowners requested to attend the annual meeting and was told by the law firm that the homeowner would not be allowed to attend, and that “this whole thing would not have happened if you would just pay your bills.”
On Feb. 6, 2018, the homeowners received an updated ledger from the law firm and although this correspondence purported to provide the homeowners with “verification of your account as you requested,” the homeowners deny having made any such request for verification.
On April 5, 2018, the homeowners filed a complaint against the law firm brought under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. In their complaint, the homeowners alleged that the law firm violated various provisions of the FDCPA by engaging in unfair debt collection practices and by improperly communicating with the homeowners after they had disputed the debt and had made a written cease communication demand. The law firm responded by seeking dismissal of the complaint as untimely or, in the alternative, for summary judgment.
The trial court granted the law firm’s motion to dismiss the complaint based on the statute of limitations, holding that the entire complaint was time-barred because the more recent violations that the homeowners alleged were of the “same type” as other violations that occurred outside the one-year limitations period.
The homeowners appealed.
The sole question on appeal was whether the trial court erred in concluding that all the homeowners’ claims were barred by the FDCPA’s statute of limitations.
The homeowners argued that the trial court erred in dismissing all their claims as time-barred because two of the alleged violations occurred less than one year from the date they filed suit. According to the homeowners, under the language of 15 U.S.C. § 1692k(d), a new statute of limitations arose with each “violation” of the FDCPA.
In response, the law firm argued that the first alleged violation of the FDCPA occurred outside the limitations period and all later communications by the law firm arose from its attempt to collect the same debt.
The Fourth Circuit first acknowledged that under the FDCPA, claims must be brought “within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). Moreover, the Court noted that nothing in the FDCPA suggests that “similar” violations should be grouped together and treated as a single claim for purposes of the FDCPA’s statute of limitations. To the contrary, the Court held that a “separate violation” of the FDCPA occurs “every time” an improper communication, threat, or misrepresentation is made. United States v. Nat’l Fin. Servs., Inc., 98 F.3d 131, 141 (4th Cir. 1996). Accordingly, the Court concluded that Section 1692k(d) establishes a separate one-year limitations period for each violation of the FDCPA.
In coming to its ruling, the Fourth Circuit noted this interpretation avoids creating a safe harbor for unlawful debt collection activity where no matter how frequent or abusive such collection efforts became, the debtor would be left entirely without a remedy simply because the debtor did not timely pursue the first violation.
Finally, the Court observed that two other federal appellate courts have also concluded that the FDCPA’s limitations period runs anew from the date of each violation. See Demarais v. Gurstel Chargo, P.A., 869 F.3d 685, 694 (8th Cir. 2017); Llewellyn v. Allstate Home Loans, Inc., 711 F.3d 1173, 1188 (10th Cir. 2013). As those courts recognized, it “does not matter that the debt collector’s violation restates earlier assertions — if the plaintiff sues within one year of the violation, [the suit] is not barred by § 1692k(d).” Demarais, 869 F.3d at 694; see also Llewellyn, 711 F.3d at 1188.
Accordingly, the Fourth Circuit vacated the trial court’s judgment and remanded the case for further proceedings.