Narca members should review the entire decision of Gostony, v. Diem Corp. & Debra Dencek, 2003 U.S. Dist. LEXIS 23255 (CIV 02-02429-PHX-MS) (Dist Ct Ariz Aug 2003) as it addresses several key issues affecting all debt collectors. The following issues addressed by the court are covered in this article:

1. Is demanding attorneys fees or collection costs prior to judgment permissible when the contract provides for same to the prevailing party?
2. Overshadowing issues between the Miranda statement (validation of debt), and the text/body of the letter inviting the debtor to contact your office by telephone;
3. Identifying potential future legal remedies (filing suit and being garnished);
4. FCRA: Agency’s duty to respond to a dispute from debtor or relative.
5. Is a disclosed agent considered "creditor" under the FDCPA?
6. Is the use of an alias or pseudonym by a disclosed agent, an FDCPA violation?

In Gostony the collection agency sought to collect a 40% contingency fee provided in one of the two agreements signed by the plaintiff. The agreement provided that "the prevailing party may recover reasonable attorney's fees and other normal and customary costs of collection including but not limited to collection agency fees and court costs"

The court held that the key words "prevailing party" controlled. It was irrelevant that the phrase "in a legal proceeding" was absent or that collections costs are incurred prior to the legal proceeding. The Court stated "that it is unreasonable to assume that a party may unilaterally proclaim itself a ‘prevailing party’ and that the term by necessity implies that the party "prevailed" in some judicial proceeding." Thus, the Arizona district court held that demanding "contractual prevailing party damages" was a violation of 15 U.S.C. § 1692e(2)(A) and (B) and 1692f(1) and that attorney fees or collection fees could not be demanded in the initial 30 day Miranda letter, nor prior to the court awarding damages.

It is strongly recommended that counsel and collection agencies review their clients contracts for this "prevailing party language," and amend them accordingly. Unless there is a statutory basis for these fees, they cannot be demanded until after a court awards these fees.

 

The second issue addressed by the court was whether a request to contact the debtor’s office by telephone is a FDCPA violation. The relevant text of the letter stated:

You may use the enclosed envelope for your payment in full. If you have any questions or concerns with regard to this debt, or you wish to pay via check by phone or credit card, call the office Monday through Friday 8am - 5 pm or fill out the information at the bottom and return the notice.

 

The court held that "the invitation to Plaintiff to call the Defendants' office extending to "questions or concerns" regarding the debt or to Plaintiff's decision to pay the debt" did not overshadow the Mini-Miranda notice. The court held that the language in the body of the letter was not inconsistent with the 30-day validation notice disclosure advising the debtor of the option to dispute the debt in writing and did not violate 15 U.S.C. § § 1692e(5), 1692e(10), and 1692g(a), as alleged. The court cited the follow cases.

Terran v. Kaplan, 109 F.3d 1428, 1434 (9th Cir. 1997) ("the request [in the debt collection notice] that the debtor telephone the collection agency does not contradict the admonition that the debtor has thirty days to contest the validity of the debt."); Lerner v. Forster, 240 F. Supp. 2d 233 (E.D.N.Y. 2003) (discussing case law that addresses "the distinction between resolving and disputing debt[,]" and declaring that "it does not follow that simply because a collection letter instructs a consumer to contact a debt collector that the validation notice is necessarily overshadowed or contradicted.").

The plaintiff alleged that a subsequent letter (19 days after the first letter) violated 1692g and 1692e(10) by using the following language:

May we suggest you have your attorney determine your liability for this debt. 

If you do not wish to seek the advice of an attorney, you must contact this office and arrange settlement of your obligation to our client.

"If you fail to make agreeable arrangements with this office, you subject yourself and all those responsible for this debt to further collection action which may include having a lawsuit filed against you and/or garnishment of your wages."

The defendants alleged an FDCPA violation because a judgment had not obtained against the debtor, a prerequisite to garnishment of wages. The debtor also alleged that the letter caused a false sense of urgency, as the 30 day period had not expired. The court rejected both arguments and held that the following "cautionary language" protected the agency: "if the debt were not settled, at some future point a lawsuit may be filed, and that garnishment of wages may also be instituted. The court determined that there was no false threat of urgency because the term "must contact" does not mean that the debtor must perform that act "immediately." The court cited Wade v. Regional Credit Ass'n, 87 F.3d 1098, 1100 (9th Cir. 1996) "(no false representation violating § 1692e(10) where collection notice informed plaintiff that she had an unpaid debt and failure to pay might adversely affect her credit):

Practice tip: Use cautionary language such as "may, if, should" when making representations as to future potential outcomes. Avoid using reference to post judgment remedies in pro-debtor circuits, such as the 2^nd & 7^th circuits. While disclosing these possible outcomes is not a violation of the FDCPA by itself, it may require a trial to be victorious.

The next issue addressed by the court involved letters the plaintiff sent to the agency advising them that the debt was disputed. The first letter was written by her father on her behalf. The second letter from the debtor was sent a few months later by U.S. Postal Service certified mail return receipt requested and stated:

"I am disputing and challenging this alleged debt, and demanding not only that you conduct your own investigation into the accuracy and completeness of this claim against me, but also provide me with validation of this alleged debt to include, [*24] but not necessarily be limited to, all correspondence from your client Village at Stonecreek Apartments that would substantiate such a claim."

Plaintiff asserted that the agency violated 15 U.S.C. § § 1692e(8), 1692e(2)(A), and 1692e(10) by failing to notify credit reporting agencies that her debt was disputed. Section 1692e(8) prohibits a debt collector from "communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed."

"The Defendants admitted having received the first letter, but denied receiving the second letter nor receiving any correspondence or phone calls from the plaintiff or her authorized representative disputing the debt before placing the debt on Plaintiff's credit history.

The court denied summary judgment on this issue as there were issues of fact as to whether Defendants were aware of who the relative "Henry Gostony" was and whether they could have known he was authorized to act on Plaintiff's behalf, if in fact he was. The court also noted that Plaintiff's evidence demonstrates that credit reports for Plaintiff dated October 18, 2002 and November 7, 2002 do not appear to list the debt as disputed, but a report dated January 11, 2003 indicates that the Plaintiff had disputed the account information. The court held that "one plausible conclusion from this evidence is that Defendants timely reported Plaintiff's debt as disputed once it received Plaintiff's October 28, 2002 letter."

Practice Tip: Keep a record of all mail sent and received by certified, registered, by courier, or by overnight carrier (ie: UPS, Airborne, Federal Express, or DHL). Assign a manager or preferably an attorney to review these incoming letters.

Is an disclosed agent considered "creditor" under the FDCPA

The debtors claimed that the defendants misrepresented the identity of the actual creditor by listing the agent, "The Village of Stoneycreek" as the creditor instead of the actual owners, John and Joyce Nolan. The court held that the definition of "creditor" necessarily included its disclosed agents mentioned in the rental agreement. This ruling is new law and provides new protection to disclosed "serving agents" of the creditor. Hopefully, other courts will adopt this position

Practice Tip: Disclose your agents for payment or servicing in your contracts.

The court held that it was not a FDCAP violation to use an alias or pseudonym. The Court relied on Lewis v. ACB Business Services, Inc., 135 F.3d 389 (6th Cir. 1998) and Johnson v. NCB Collection Services, 799 F. Supp. 1298 (D. Conn. 1992). The court concluded that the use of the alias resulted in no harm or prejudice, because the "source" of the disputed letter clearly was the defendant. The court also observed that the "use of aliases and office names is well-established to protect collection agency employees."

In summary this case addresses several issues affecting debt collectors, and is worth reading.