Consumer Finance Litigation

In Bandy v. Midland Funding, LLC, No. 12-00491-KD-C, 2013 WL 210730 (S.D. Ala. Jan. 18, 2013), the U.S. District Court for the Southern District of Alabama held that filing a collection lawsuit without first obtaining evidence to prove the claims is not a violation of the Fair Debt Collection Practices Act ("FDCPA"). The Bandy defendant, a debt collection agency, filed suit in state court seeking to collect on a debt allegedly owed by the plaintiff. However, the debt collector's complaint allegedly did not contain any allegations supporting the validity of the debt, but only stated the amount allegedly owed. At no point during the course of the state court litigation did the debt collector present evidence to substantiate the debt. The state court found for the plaintiff during the bench trial. The plaintiff then filed suit against the collector in federal district court, contending that the state court lawsuit violated 15 U.S.C. § 1692e and f of the FDCPA and constituted an invasion of privacy under both state and federal law. Specifically, the basis of the plaintiff's FDCPA claims was that the collector routinely files collection lawsuits without obtaining evidence and without ever intending to obtain evidence. Notably, the plaintiff did not allege that the collector could never obtain evidence, nor did the plaintiff allege that that the state court pleadings contained false statements. In analyzing the viability of the plaintiff's claims, the district court first looked to the reasoning in Harvey v. Great Seneca Financial Corp., 453 F.3d 324 (6th Cir. 2006). There, the Sixth Circuit Court of Appeals affirmed the dismissal of FDCPA claims based on the allegation that the debt collector filed its complaint without first obtaining evidence "'because of the time and cost of obtaining such documentation,' not that [the collector was] incapable of doing so." The district court also looked to Deere v. Javitch, Block, & Rathbone, L.L.P., 413 F. Supp. 2d 886 (S.D. Ohio 2006), where the plaintiff had alleged that the only evidence supporting its collection lawsuit was an affidavit filed by the collector. The Deere court held that the plaintiff had failed to state a claim for relief because she did not allege that the affidavit contained false statements. Finally, the district court cited Gonzalez v. Erskine, No. 08-20893, 2008 WL 6822207, at 3 (S.D. Fla. Aug. 7, 2008), for the proposition that there is no FDCPA violation where a debt collector files a collection complaint supported by a sworn affidavit. Applying the reasoning of the foregoing cases, the district court held that Bandy failed to state a cognizable FDCPA claim for two reasons. First, the district court observed that "[the plaintiff's] FDCPA claims rest on the allegation that [the collector] chose not to acquire evidence needed to prove its case, not that it was incapable of doing so or that it could never do so." Second, the district court noted that [the plaintiff] failed to allege "that Midland knew or should have known that its claim was baseless, or that any information contained in the collection complaint was false." The district court also noted that the proper venue for the plaintiff to challenge the collector's motive in bringing the state court suit was in the state court suit itself, not in a subsequent FDCPA action. In dicta, the district court also noted that it was "doubtful that the FDCPA applies to state court litigation," citing Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 480 F.3d 470, 473 (7th Cir. 2007) ("[I]t is far from clear that the FDCPA controls the contents of pleadings filed in state court." (dicta)). Although the district court did not base its opinion on the inapplicability of the FDCPA, it left the door open for collectors to raise this argument. After Bandy, debt collectors have ammunition to seek dismissal of FDCPA claims based solely on allegations of state court lawsuits filed without supporting evidence. This includes lawsuits where plaintiffs allege that a debt collector engages in a pattern and practice of filing unsupported lawsuits --an allegation specifically made by plaintiff and rejected by the district court. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.