Samuels v. Midland Funding, LLC
2013 WL 466386, 2013 U.S. Dist. LEXIS 17085, 921 F.Supp.2d 1321 (2013)
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Rule of Law:
The Fair Debt Collection Practices Act (FDCPA) applies to debt collectors' litigation activities, and filing or maintaining a collection lawsuit while knowing one lacks evidence to prove the debt and without intending to obtain such evidence, but rather to coerce payment or default, can constitute a false representation or deceptive means in violation of the FDCPA.
Facts:
- Midland Funding, LLC (the defendant) operates a business model of purchasing small consumer debts in bulk at a deep discount from their nominal balances.
- The information Midland Funding, LLC receives when purchasing debts in bulk is too limited to establish the validity of the debt, its ownership, or the calculation of the balance claimed.
- Midland Funding, LLC's uniform practice is to make no effort to obtain evidence to sustain its burden of proof at trial and has no intention of obtaining or proving its claims.
- Midland Funding, LLC files lawsuits with the intention of either obtaining default judgment or settling with the consumer if they respond, rather than proving its case.
- Midland Funding, LLC applied this pattern to Samuels (the plaintiff), who denies owing any debt to the company.
- Midland Funding, LLC filed a collection suit against Samuels after supposedly purchasing the debt, but without taking reasonable steps to ensure the debt's validity and with no intention of obtaining evidence.
- Midland Funding, LLC intended to intimidate or coerce Samuels into payment or suffering a default judgment by falsely implying it was willing to prove its claim in court.
- Samuels retained counsel and appeared at trial, where Midland Funding, LLC's attorney appeared with no witnesses or competent evidence to prove the debt, consistent with its business model.
Procedural Posture:
- Samuels filed a complaint in federal district court against Midland Funding, LLC, alleging violations of the Fair Debt Collection Practices Act (Count One) and state law causes of action (Counts Two through Six) including invasion of privacy, negligent/wanton/intentional hiring, supervision, etc., negligence/wantonness/intentional conduct, malicious prosecution, and abuse of process.
- Midland Funding, LLC (defendant) filed a motion for judgment on the pleadings, seeking dismissal of all claims brought by Samuels (plaintiff).
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Issue:
Does a debt collector violate the Fair Debt Collection Practices Act by filing and maintaining a collection lawsuit against a consumer, knowing it lacks evidence to prove the alleged debt and having no intention of obtaining such evidence, but instead aiming to coerce payment or obtain a default judgment?
Opinions:
Majority - William H. Steele
Yes, a debt collector can violate the Fair Debt Collection Practices Act by filing and maintaining a collection lawsuit against a consumer, knowing it lacks evidence to prove the alleged debt and having no intention of obtaining such evidence, but instead aiming to coerce payment or obtain a default judgment. The court denied Midland Funding, LLC's motion for judgment on the pleadings, finding that Samuels's complaint stated a plausible claim under the FDCPA. The court reasoned that the FDCPA applies to lawyers engaged in collection litigation, citing Heintz v. Jenkins and LeBlanc v. Unifund CCR Partners. Samuels's theory was distinct from claims merely based on the lack of supporting evidence at the time of filing, focusing instead on Midland Funding, LLC's fixed intention not to prove its claim and its knowledge that it would never be able to do so. This conduct could violate FDCPA provisions against threatening actions not intended to be taken (15 U.S.C. § 1692e(5)), using false representations or deceptive means (§ 1692e(10)), falsely representing the character, amount, or legal status of a debt (§ 1692e(2)(A)), and using unfair or unconscionable means (§ 1692f). The court explicitly found the reasoning of other district court cases, such as Bandy v. Midland Funding, LLC and Deere v. Javitch, Block & Rathbone, LLP, unpersuasive where they rejected similar claims. It further determined that the alleged misrepresentation (Midland Funding, LLC's intent to prove its claims) was material under the 'least sophisticated consumer' standard, as such a consumer would consider the debt collector's lack of intent to prove its claim important in deciding whether to oppose the lawsuit. The court also rejected arguments that state law remedies preclude federal FDCPA claims or that the plaintiff was merely quibbling with litigation strategy.
Analysis:
This case significantly clarifies that the Fair Debt Collection Practices Act (FDCPA) extends to the litigation activities of debt collectors, holding them accountable for conduct within state court collection actions. It establishes that initiating and maintaining a lawsuit with full knowledge of insufficient evidence and no intent to prove the debt, merely to coerce a settlement or default, can be considered an abusive and deceptive practice. This ruling provides a crucial legal avenue for consumers to challenge 'junk debt buyer' lawsuits, potentially increasing the burden on such entities to thoroughly verify debts before filing suit and limiting their ability to use the court system as a strong-arm collection tactic.
