Consumer Finance Litigation

In White v. Sherman Financial Group, LLC, No. 3:12-cv-404, 2013 WL 5936679, 1 (E.D. Tenn. Nov. 4, 2013), the U.S. District Court for the Eastern District of Tennessee recently denied the plaintiff's partial motion for summary judgment and granted summary judgment in favor of the defendants on all but one the plaintiff's Fair Debt Collection Practices Act ("FDCPA") claims and, in the process, rendered a significant decision regarding the interplay between the FDCPA and filing state collection actions in Tennessee. In White, the plaintiff alleged the defendants, Sherman Financial Group, LLC ("Sherman"), LVNV Funding, LLC ("LVNV"), Resurgent Capital Services, L.P. ("Resurgent"), Tobie Griffin ("Griffin"), and Buffaloe & Associates, PLC ("Buffaloe"), of violating a number of FDCPA provisions when Buffaloe filed a civil warrant and sworn affidavit on behalf of LVNV. The civil warrant sought to collect the principal amount due on the debt "plus pre and post judgment interest accruing at the statutory rate of 10% and court costs." Griffin signed the sworn affidavit, which stated the principal amount due "plus any additional accrued interest." The plaintiff denied the existence of the debt and the state collection suit was eventually dismissed. The plaintiff then brought the federal suit asserting that the defendants violated the FDCPA by filing the state collection action and, thus, allegedly making false, misleading representations, taking an action which could not legally be taken by failing to obtain a proper license, failing to make requisite disclosures in the civil warrant and sworn affidavit, and filing the suit in an improper venue. The specific FDCPA provisions the plaintiff alleged were violated were as follows: 1692e(2)(A), 1692e(2)(B), 1692e(8), 1692e(10), 1692e, 1692e(5), 1692f, 1692f(1), 1692e(11), 1692g(1)(3)-(5), and g(1)(3)-(5), and 1692i(a)(2). At the outset of the opinion, the Court granted summary judgment in favor of Sherman as to all of the plaintiff's claims because the plaintiff did not discuss Sherman's liability and only briefly even mentioned Sherman. The court then addressed the plaintiff's claims against the remaining defendants. First, the plaintiff claimed that the defendants filed the collection suit without possessing competent evidence to establish the debt was owed to LVNV and while knowing that they did not intend to ever prosecute the case or validate the evidence. The court found that the plaintiff provided no evidence of any intent not to pursue the action or of a pattern of practice of doing so. Furthermore, the court found that, despite taking issue with the affiant's level of personal knowledge, the plaintiff provided no evidence to counter the information in the affidavit. The court also found that "the mere fact defendants dismissed their collection action against plaintiff is insufficient to create a genuine issue of material fact." Plaintiff also argued that the defendants violated a number of FDCPA provisions because the amount sought in the civil warrant was the principal plus pre and post judgment interest and court costs, while the affidavit only stated "[the principal amount] plus any additional accrued interest." The court found this argument "meritless" because "the affidavit clearly states the amount due, including the possibility of interest, and was used to validate the debt on which the civil warrant is seeking to collect." Furthermore, the court stated that "[t]he failure to include the court cost amount would not be misleading, nor would it be an attempt to collect on an amount not authorized by law, given that court costs are authorized by statute." Therefore, the court found the statements were not inconsistent with each other and would not deceive the least sophisticated consumer. The court granted summary judgment for the defendants as to the 1692e, 1692e(2)(A), 1692e(2)(B), 1692e(5), 1692e(8), 1692e(10), 1692f, and 1692f(1) claims. Second, the plaintiff claimed LVNV's failure to obtain a license to be a debt collector under Tennessee law was a violation of the FDCPA. LVNV claimed it was exempt from Tenn. Code Ann. § 62-20-105 licensing requirement because it hired the law firm to carry out its collection efforts. The court recognized that Smith v. LVNV Funding, LLC, 809 F. Supp. 2d 1045, 1049 (E.D. Tenn. 2012), held that the failure to obtain the necessary licensing could give rise to a FDCPA violation for threatening and or taking legal action which it was not authorized to do. However, in this case, the court held that LVNV was not required to obtain a collection service license from the Tennessee Collection Service Board ("TCSB"). The court fully relied on a "clarification statement" issued by the TCSB, which states as follows:

It is currently the opinion of the Tennessee Collection Service Board that entities who purchase judgments or other forms of indebtedness will be deemed a 'collection service' if they collect or attempt to collect the debt or judgment subsequent to their purchase of the debt or judgment. However, entities who purchase debt or judgments in the manner described above but who do not collect or attempt to collect the purchased debt or judgment, but rather assign collection activity relative to the purchased debt to a licensed collection agency or a licensed attorney or law firm shall not be deemed to be a 'collection service.'

The Court noted that the TCSB had reaffirmed the statement as recently as May 2012. Thus, because the only evidence on the record showed that the law firm conducted all collection activity related to the plaintiff's account, then LVNV would not be a collection service according to the clarification statement and did not need a license. The court also recognized its own contrary finding in Lilly v. RAB Performance Recoveries, LLC, No. 2:12-CV-364, 2013 WL 38344008 (E.D. Tenn. Aug. 2013), this summer and stated simply that "the Court was not made aware of the existence or import of the Clarification Statement". The court found LVNV was entitled to summary judgment on 1692e(5), 1692f, and 1692f(1) claims. Third, the plaintiff argued that the civil warrant and affidavit were initial communications and that the defendants violated 1692e(11) and 1692g by failing to include the required disclosures. The court first granted summary judgment for the defendants on the plaintiff's 1692g claim. The defendants submitted an affidavit testifying that the law firm had sent a letter prior to the filing of the civil warrant and affidavit. Despite having no copy of the letter, the court found that the affidavit testifying that the records indicated a letter was sent and that the same disclosures are included in all correspondence was sufficient to prove the civil warrant and affidavit were not the initial communications because the plaintiff offered no evidence to dispute that fact. Next, the court looked at the plaintiff's 1692e(11) claims and found that both the civil warrant and the sworn affidavit are formal pleadings. The court even went on to analyze a contrary finding in Collins v. Portfolio Recovery Associates, LLC, No. 2:12-CV-138 (E.D. Tenn. June 7, 2013), and it picked apart its analysis there and found Collins is both non-binding and not persuasive. The court granted summary judgment in favor of defendants for the 1692e(11) and 1692g claims. Fourth, the plaintiff claimed LVNV was responsible for the acts and omissions of the law firm it hired. The court found that the nature of the attorney-client relationship gives the client the power to control its agent. Thus, the court found simply that "LVNV may be held liable for any of [the law firm's] FDCPA violations, making summary judgment improper." Finally, the court ruled on the plaintiff's Motion for Partial Summary Judgment. The plaintiff moved for summary judgment on the licensing, disclosure, and wrong venue claims. The court had already dealt with the licensing and disclosures issues, finding in favor of the defendants, and only had the venue issue to address. Section 1692i(a)(2) of the FDCPA requires a debt collector to bring an action in the judicial district where the consumer signed the contract or where the debtor resides. The plaintiff argued that the civil warrant was issued in Knox County, but listed the residence as Sevier County. The defendants acknowledged that the civil warrant may have been filed in the wrong county, but that they had a good faith belief as to the plaintiff's address based on credit reports. The court made no determination as to whether the defendants could carry the burden of proving the bona fide defense at trial, but found that they had created a genuine issue of material fact. The court denied plaintiff's motion in its entirety. In conclusion, the only one of the plaintiff's claims that survived was the 1692i(a)(2) claim. 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.