Title: Flores v. The Rawlins Company, LLC. S.Ct. Order Granting Motion for Reconsideration in Part, filed 03/06/2008 [pdf], 119 Haw. 287. S.Ct. Order Denying Motion for Reconsideration, filed 03/27/2008 [pdf], 117 Haw. 335.

State: hawaii

Issuer: Hawaii Supreme Court

Document:

‘s+ FOR PUBLICATION IN WEST'S HAWAL REPORTS AND PACIFIC REPORTER “

IN THE SUPREME COURT OF THE STATE OF HAWAI'I

 

00"

 

ALBERT FLORES and DONALD R. RAPOZA, Plaintiffs-Appellees

THE RAWLINGS COMPANY, LLC, Defendant-Appellant

02

 

wo. 28124 8

APPEAL FROM THE FIRST CIRCUIT COURT —
(CIV. NO. 04-1-2388) =

2

FEBRUARY 1, 2008

MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, AND DUFFY, JJ.

OPINION OF THE COURT BY DUFFY, Ju

Defendant-Appellant The Rawlings Co., LLC [hereinafter,

Rawlings), appeals from the August 1, 2006 interlocutory order of

the circuit court of the first circuit,’ denying Rawlings’ s
motion for sunmary judgment in this action initiated by
Plaintiffs-Appellees Albert Flores and Donald Rapoza
(hereinafter, collectively, Plaintiffs] against Rawlings. The
case was subsequently transferred to this court pursuant to
Hawai'i Revised Statutes (HRS) § 602-58(b) (1) (Supp. 2006) .
Although the heart of Plaintiffs’ claim is that

Rawlings violated the registration requirement for collection

 

‘The Honorable Karen §.S. An presided over this matter

qq
TL EOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER ***_
agencies under HRS § 4438-3(2) (1993), this appeal also concerns

two threshold issues regarding whether Plaintiffs may bring this
claim: (1) whether Plaintiffs have established injury within the
meaning of HRS § 480-13 (Supp. 2004), and (2) whether Plaintiffs
are “consumers” within the meaning of HRS § 480-13. The circuit
court, in denying Rawlings’s motion for summary judgment, found

that these prerequisites for bringing suit had been met and that
Rawlings was subject to the registration requirement of HRS §

4438-3(2).

 

On appeal, Rawlings argues that: (1) the circuit court
erred in ruling that Plaintiffs’ respective payments of what
Rawlings terms “valid obligations” constituted “actual injury”
sufficient to give them standing to bring suity (2) the circuit
court erred in ruling that Plaintiffs were “consumers” under HRS
chapter 480, because the transaction involving Rawlings was a
recovery of subrogation/reinbursement claims arising from tort
rather than a consumer transaction concerning the delivery of
medical services; and (3) the circuit court erred in ruling that
Rawlings was recovering “debts” within the meaning of HRS chapter
4438, such that it was a “collection agency” subject to that

chaptt

 

Based on the following, we vacate the circuit court’s
interlocutory order and remand to the circuit court to enter an
order granting summary judgment in favor of Rawlings.

2
 

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1. BACKGROUND
A, Factual Backeround

Rawlings is @ Kentucky-based company that contracted
with the Hawaii Medical Services Association (HMSA) to provide
subrogation and “claims recovery services.” As part of the
agreement, Rawlings would retain a portion of the amount
recovered. In 2001, Rawlings recovered money from 191 Hawai'i
residents. Since 2001, Rawlings has recovered money from Hawai'i
residents as follows: 288 in 2002, 309 in 2003, and 347 in 2004.
Rawlings has never registered as a collection agency with the
Director of Commerce and Consumer Affairs.

Plaintiffs were both injured in separate incidents,*
and subsequently sought medical treatment for their injuries -~
Flores in April 2001, and Rapoza in May 2002. Prior to receiving
treatment, Flores and Rapoza were each required to sign a
contract undertaking legal responsibility for payment and
assigning any insurance benefits each might receive to the
treating hospital.

Flores and Rapoza are both menbers of employer-based

medical benefits plans administered by HMSA.? Pursuant to their

 

+ Rapozs slipped and £611 due to some Liquid on the floor at Foodland
in Pearl City, on April 11, 2002. Flores was assaulted on April 3, 2001

2 lores was covers’ exployee of the Theo H. Davis & Company,
Ltd.) Rapoza’s coverage was as dependent under his wife's plan, provided by
the Unied States Office of Personnel Management ("ORM")

  

 

3
   

‘+ FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND. REPORTER.

respective medical benefits plans, certain of their medical bills
were paid by HSA. Shortly after Plaintiffs received treatment,
HUSA demanded that Plaintiffs sign agreements stating that any
money HMSA might pay for their treatment was an “interest free
loan” from HMSA to them.*

After their accidents, Plaintiffs pursued tort clains
against the third parties allegedly responsible for their
injuries. Subsequently, Rawlings sent “Notice of Lien” letters
to Plaintiffs’ attorneys giving notice that EMSA was asserting a
claim for the benefits it had paid on behalf of Plaintifts.* The
letters essentially stated that HMSA claims @ lien on the anounts

it has paid out in medical benefits on behalf of the insured,

« sapors and Flores signed identical forms, which included the
following section entitled "Lown Agreenent Between You and WMG: Please Read
the Following Carefully"!

 

Your plan will not cover your medical expenses if someone else cused or
nay have caused your injury or illness because that person may be
Fesponsible for paying your expense

 

 

Since it may take a long time to determine whether any other person is
responsible for your injury or illness, you may request MUSA to pay your
plan benefits as an interest-free loan until that question is resolved
Gnd the other person takes payment, If you accept our lean, you sgree
fo notify HMSA when ® financial settlement is reached, and yoo agree
‘that ony reimbursement or recovery you receive from any person(s)
responsible for your injary or lliness, must Eitat be veed to repay your

 

have caused your injury or illness, you do not ha
Proper docunentation must be sent to HUSA for verification.

By signing below, 1 request EMSA to pay my medical expenses as a loan
hd agree to the above loan agreement terns

 

5 Rawlings sent the letter to Flores’s then-counsel on July 5, 2002,
‘and to Repoze's coungel on February 7, 2003.

 

‘
   

FOR PU HAWATLREPORTS AND PACIFIC REPO!

 

"ATION IN WEST"

 

which applies to any amounts recovered from notified third
parties, and asks for notification of any such recovery.

After Plaintiffs settled their claims against the third
parties, they each submitted money to Rawlings to settle the HNSA
claims on @ compromise basis.’ Plaintiffs assert that both
Flores and Rapoza did not admit that either “owed any money or
that (Rawlings’s] demand was based on a valid or meritorious

claim"? In separate release agreements on Rawlings’s

 

«me text of the letter written to Flores is as follows:

four client has paid medical benefits on behalf of its menbers as the
Fesult of the accident referenced above. This letter shall serve a5
fotice to you of the lien our client ts claiming for these benefits

 

 

‘this Lien applies to any amount now due or which may hereafter become
Payable out of recovery or recoveries collected or vo be collected,
Shether by Judgment, settlenent or compromise, fon any party hereby

 

 

Mo settlement of the claim, which includes medical expenses paid by our

Client, should be made prior to notifying our office of the potential
etlement and reaching an agreenent for reimbursement of these

nefits.

   

we are notifying all interested parties of our client's clain/lien and
Feqoest that you provide all pertinent information regaraing the adverse
and their insurance carrier

   

Jo confirm your representation of our client's meaber and provide
the requested information by completing snd returning the encloses form.

   

> aus paid medical benefits on behalf of Flores in the anount of
$8,149.68. Flores received $18,006.09 in settlement of his claim against the
third-party tortfeasor on March’ 22, 2004, Flores, through his attorney, paid
§€,076-95 to Rawlings
‘ga paid medieai benefits on behalf of Rapoza in the amount of

$4,399.97, Rapoza received §23,000.00 in settlement of his claim against the
third-sarty tortfeasor on Mazch'12, 2003. Rapoza, through his attorney, paid
'$2,200-00 to Rawlings.

  

+ the record ie devoid of any evidence that Flores or Rapoza made any
adaission of owing money oF thet Rawlings's desand wae valid. As support. for
(cont insed.--)
 

WAIT REPORTS AND PACIFIC REPORTER

 

FOR PUBLICATION IN.

 

letterhead, both in December 2004, HMSA released Flores and
Rapoza “fron any and all claims and liens for subrogation or
reimbursement for medical expenses which the undersigned now has
or which may hereafter accrue as a result of the accident

Procedural History
On December 28, 2004, Plaintiffs commenced this action

 

in the first circuit court, alleging claims under HRS chapters
4365,? 4438, and 480. Rawlings admitted that it had not
registered as a collection agency under HRS chapter 443B, which
it contends does not apply to its business activities. On June
1, 2006, Rawlings moved for summary judgment, arguing that:

(1) Plaintiffs could not show any injury from Rawlings’s alleged
violation of chapter 4438; (2) Plaintiffs were not “consumers”
under chapter 480; and (3) Rawlings was not required to register

under HRS § 4438-3 because it did not collect “debts” from

#1. -continued)
this fact, Plaintiffs point to the Brief settlenent letter and an email
Ceamunication from their counsel to Rewlings “urgling] [Rawlings] te
Feconsider" the Plaintiff's "reasonable offer to reduce HINSA’s 1ien by SOt to
avoid any litigation’... ."" The settlement letters did not Anclude any
Suniscions. The letter settling Rapoza’ s claim stated sinply that “(tins
letter will confirm our agreenent to settle the above referenced matter,”
hich was referred to above by inclusion of the patient nane and date of loss.
‘The letter confirming settionent of Flores’ claim stated! “i have discusses
your offer with our client and they will agree to reduce their lien and accept
£5,99.91," an anount that was reduced in further negotiation. Likewise,
further cenminications between Plaintiffs and Rawlings fail to evidence
acnission by Plaintiffs that they owed money of that Rawlings’ s demand ¥
Based on a valid claim.

 

 

 

 

 

 

  

* Xt 4s not clear what claim was brought under HRS chapter 4368. In any
event, any such claim ie not part of this sppea!

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++ FOR PUBLICATION IN WEST'S HAWAT REPORTS AND PACIFIC REPORTER ***

Plaintiffs. Plaintiffs countered that: (1) they showed injury
because they paid money to Rawlings in direct response to
Rawlings’s illegal acts of demanding payment; (2) they were
“consumers” because the money Rawlings claimed that they owed was
money owed for the purchase of personal healthcare services; and
(3) the money paid was a “debt” because it arose from Plaintiffs’
own pre-treatment agreenents with their personal health care
providers.

Rawlings’s motion was argued on July 18, 2006. The
circuit court denied the motion, reasoning, in relevant part:

chapter 4438 . . . is broad and it ains to eliminate
abusive debe collection practices by collectors «

‘Chapter {438 and the cerm “consumer” in [cjhapter 480,
read in the context of thelr purpose and reading the
provistons together, cannot be (as) Limited as” (Rawlings)
Seeks co argue.

Section 4438-3 clearly says that a collection agency
cannot collect of try to collect a debt without first
registering.

Section 4438-20 says that any viclation of (c]hapter
14438 by such on agency 18 actionable under [s]ection 480-2

low, the relevant alleges violation here is the
collection of an alleged dest without first having
Fegistered in Hawai. The Court agrees that when, pursuant
toan agreenent, EMSA paid medical bills for [P]laintifts,
then [Rawlings] by contract collected out of [Pllaintifts!
Settlenente for those nedics) bills, (P]laintifts were
actually injured.

 

 

 

 

    

 

‘no Court fundamentally agrees with [Plaintiffs] that
the term "debt" and “consumer” can and should be read to
apply to [Pllaintiffe" payment of money arising out of the
trantacticn, under our facts, of consensual arrangenent for
poynent for delivery of medical services.

on August 1, 2006, an order denying Rawlings’s motion for summary
judgment was entered. On August 30, 2006, the circuit court

signed an order permitting Rawlings to take an interlocutory
 

FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER
appeal under HRS § 641-1(b) (1993). Rawlings filed its opening
brief on January 10, 2007, raising the same three points of error
raised in its motion for summary judgment. The case was
subsequently transferred to this court pursuant to § 602-

58(b) (1), by order of the court.

Oral argument was held on October 17, 2007. In
addition to the arguments made in their appellate briefs, at oral
argument Rawlings made several additional arguments about the
nature of the amounts owed by Plaintiffs to HMSA, discussed
herein. Rawlings also brought to the court’s attention several
egal authorities not cited in their appellate briefings,
including: a recent decision of the Washington Court of Appeals,
Stephens v. Omni Insurance Co,, 159 P.3d 10 (Wash. Ct. App.
2007); 2 1987 informal staff opinion of the Federal Trade
Commission; and an unpublished disposition of the United states

District Court for the Middle District of Louisiana, Pantin vs

 

‘The Rawlings Co., Case 3:03-cv-00116-JVP-CN (M.D. La. Apr. 13,

2005).

‘The standard for granting # motion for summary judgment Le
settled?

(Slumary judgment is appropriate if the plesdings,
depositions, answers to interrogatories, and
sanlssions on file, together with the affidavits, if
any, show thet thefe is no genuine issue as to any
Baterial fact and that the moving party is entitled to

 

e
 

Judgnent as a matter of law, A fact ia material sf
proof of that fact would have the effect of

ishing of refuting one of the essential elements
Sf a cause of action or defense asserted by the
parties. The evidence mist be viewed in the light
Rost favorable to the non-moving party." In other
Sods, we must view sll of the evidence and the
Inferences dravn therefrom in the Light mest favorable
to the party opposing the motion.

 

Ad. (citations and internal quotation marks omitted)

Goon v. City and County of Honolulu, 98 Hawai'i 233, 244-45,

Fr3a 348, 389-60 (2002) (second alteration in origina)

Kauv. City and County of Honolulu, 104 Hawai'i 468, 474, 92 P.3d

477, 483 (2004).

B. Statutory Interpretation

Statutory interpretation is “a question of law

 

 

reviewable de novo.” State v. Levi, 102 Hawai'i 262, 285, 75

P.3d 1173, 1176 (2003) (quoting State v. Arceo, 84 Hawai'i 1, 10,

928 P.2d 843, 852 (1996)). This court's statutory construction

is guided by established rules:

First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language 18 plain and
unambiguous, our sole duty is to give effect to its plain
and obvious meaning. Third, Amplicit in the task of
Statutory construction ss our foremost cbligation £
ascertain and give effect to the intention of the
Iestsleeare, which 1s to be obtained primarily from the

Language contained in the statute itself. fourth, shen
there 1s doubt, doubleness of meaning, of indistinctiveness

or uncertainty of an expression used in a statute,
ambiguity exists

Peterson v. Hawaii Elec. Light cov, Inc., 65 Hawai'i 322, 327-28,
944 P.2d 1265, 1270-71 (1997), superseded on other arounds by HRS

 

 

   

 

 

 
 

§ 269-15.5 (Supp. 1999) (block quotation format, brackets,
citations, and quotation marks omitted).

In the event of ambiguity in a statute, “the meaning of
the ambiguous words may be sought by examining the context, with
which the ambiguous words, phrases, and sentences may be
compared, in order to ascertain their true meaning.” Id.
(quoting HRS § 1-15(1) (1993)). Moreover, the courts may resort
to extrinsic aids in determining legislative intent, such as
legislative history, or the reason and spirit of the law. See
HRS § 1-15(2) (1993).

TIT. pIscussION
AL Raul “collection Agency" th:

Alleged to be Due and Oving Within the Meaning of HRS §
Ags

Rawlings argues that the circuit erred in holding that
Rawlings is a debt collector subject to HRS chapter 4438, because
it does not recover “debts” as defined by HRS § 4438-1.

HRS § 4438-3 provides that

No collection agency shall collect or attempt to
collect any money or any other foras of indebtedness alleged
to be due and owing from any person who resides or does
business in this State without first registering under this
chapter

 

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IAWAI'I REPORTS AND PACIFIC REPORTER ***
HRS § 443B-3(a).° Tt is not disputed that Rawlings did not
register within the meaning of HRS chapter 4438. Therefore,
the relevant issues in determining whether Rawlings was
required to register under HRS § 4438-3(a) are (1) whether
Rawlings is a “collection agency” and (2) whether Rawlings
“collect [ed] or attempt [ed] to collect any money or any

other forms of indebtedness alleged to be due and owing”

from a Hawai'i resident.

 

Rawlings is a “Collection Agency.”

Rawlings’s principal argument is that it is not subject
to the registration requirement because it does not collect
“debts.” To the extent this argument relies on federal law,
however, it is misconceived. Because regulation of a “collection

agency” under chapter 4438 only requires that a “person” -~ Like

 

Rawlings -- “offer{] to undertake or hold{] oneself out as being

able to undertake or does undertake to collect for anothe

 

person, claims or money due on accounts or other forms of

indebtedness,” HRS § 443B-1 (1993) (emphasis added), for a fee,

\ RS § 443-3(b) explaina that “(rJegistration shall inclu

 

(2) Submission of # complete application for registration:

{2} Souaission of & certificate of good standing or 2 certificate of
authority from the business registration division:

(3) Payment of appropriate fee:

(4) Filling ang seintenance of a bond in the anount prescribed in

(5) Maintenance of a regular active business office in the State: end

(6) Designation of a principal collector, as prescribed in section
Besar

 

 

 

 

 

n
 

9+ FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER,

it is not required that the collection agency at issue collect
‘debts.” Rawlings has not argued that it does not collect
“claims or money due on accounts,” but only that it does not
collect “debts.” Furthermore Rawlings did not rebut this
argunent in its reply brief, although it was clearly raised by
Plaintiffs in their answering brief.

Rawlings’s misreading of our statute appears to be
based on an erroneous supposition that the federal Fair Debt
Collection Practices Act (POCPA) has the same coverage as our
law, which is evidenced by Rawlings’s extensive reliance in its
briefings on federal caselaw interpreting the FOCPA. Hawaii's
law defines “collection agency” more broadly than the federal
law, which regulates entities it defines as “debt collectors.”
Whereas 2 “collection agency” in our law includes persons who
collect claims or money due on accounts, the FOCEA definition of
“debt collector” is limited to collection of “debts.” gee 15
U.S.C. § 1692a(6) (2006) ("The term ‘debt collector’ means any
person who uses any instrumentality of interstate commerce or the
ails in any business the principal purpose of which is the

collection of any debts, or who regularly collects or attempts to

 

S Neither is HRS § 4438 jistration requirenent, linited to
debt collection, but expressiy prohibits any unregistered collection agency

 

 

fron “collect(sng] or attempt [ing] to collect any Roney or eny other
indebtedness alleged to be due and owing sss 1 HRE § 4438-3. (empha
adsed) See intra.

 

2
 

FOR PUBLICATION IN WEST'S HAWAET REPORTS AND PACIFIC REPORTER
collect, directly or indirectly, debts owed or due or asserted to
be owed or due another.” (Emphases added.)).

The statutory structure of the Hawai'i Revised Statutes
reinforces the view that HRS chapter 4438 is broader in its
coverage that the federal statute. Hawai'i law contains a
separate chapter entitled “collection practices,” HRS chapter
4800, that is “intended to cover collection activities by debt
collectors in collecting consumer debts.” HRS § 4800-1 (1993).
Unlike chapter 4438, chapter 480D specifically covers “debt
collectors,” which are defined as “any person, who is not a
sollection agency, and who in the regular course of business
collects or attempts to collect consumer debts owed or due or
asserted to be owed or due to the collector.” HRS § 4800-2
(1993) (emphasis added). Both chapters were passed by the
legislature in the sane act. 1987 Haw. Sess. 1, Act 191, at 423-
30. The differences between the two chapters provide a clear
indication that the legislature intended the regulation of
“collection agencies” in HRS chapter 4438 to be distinct from its
regulation of “debt collectors.” ‘Therefore, federal law
interpreting the latter term cannot be interpreted to cover

“collection agencies."

 

Rawlings argues that federal law should set the precedent in teu of
Law on point. However, federal law does not set precedent merely
based on an absence of Hawai'i case law. Foreign law can be persuasive in
Ranai's, but only when there ts a basis for its application. See
(continued. ..)

 

 

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IN WEST'S HAWATI REPORTS AND PACIFIC REPORTER

The critical distinction between our law and the
federal law is that our statute is targeted towards those who
collect “claims or money due on accounts or other forms of
indebtedness” while the federal law is limited to those who
collect “debts.” The terms “claims” and “money due on accounts”
are not defined in HRS chapter 4438 and, as such, should carry
their ordinary meanings. It is apparent that Rawlings was
collecting “claims” that HNSA hed against Plaintiffs. Even
Rawlings characterized its collection activity in this manner,
stating in its opening brief that it had sent the Plaintiffs’
attorney “notice that HNSA was asserting a claim for the benefits
HMSA had paid on behalf of each (Plaintiff) for the injuries
sustained as a result of the third-parties’ actions.” (Emphasis

added.)

2 (. continued)
Fresh Prodice await. Inc, v. Way, 112 Hawai'i 489, 507 0.33, 146 P.3d
Toe, 1084 N33 (2006) (AIthough thie court has used federei precedent on
cccasion in the past to guide its interpretation of state... laws, such
Consultation is solely to aid interpretation and only makes sense wnere the
statutory language is the sane or similar in ail relevant respects.” (Citation
saitted.|)

 

 

the term “claim” is defined in the following ways relevant to this
issue: (1) “The assertion of an existing right; any right to peyment oF to an
equitable remedy, even if contingent or provisional"; (2) A demand for money,
Property, or s legal renedy to which one asserts a right’. <<" and (3) san
interest or renedy recognized av law. sy. a zea (th
ed, 2004) (some definitions are not Anciuded herel. This extreerdinee sty
broad definition would appear to encompass the amoints that Rawlings sought to
Fecover from Plaineiffs on behalf cf HRA.

 

 

 

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s+ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER *

 

Rawlings Collected "Money or Any Other Forms of
Indebtedness Alleged to be Due and Owing.”

A collection agency that collects or attempts to
collect “any money or any other forms of indebtedness alleged to
be due and owing” from a Hawai'i resident must register. HRS §
4438-3. ‘The moneys collected from Plaintiffs by Rawlings would
appear to fit under this broad category.

At oral argument Ravlings asserted, for the first tine,
that the amounts it collected were not “due and owing,” and thus
not subject to the registration requirement of HRS § 4435-3.
Separate and apart from the fact that Rawlings failed to assert
this argument in the circuit court, it fails on its merits.

Rawlings did not present a clear factual argument for
its assertion that the money it had collected from Plaintiffs was

not,

 

Lieged to be due and owing.” At different pointe Rawlings
recast its argument into separate assertions (1) that the amounts
collected were “unliquidated” and (2) that they were not in
“default” at the time Rawlings sought to collect upon them.
However, contrary to Rawlings’s argunent, neither of these
scenarios negates the conclusion that because of the loan
obligation, these amounts were “alleged to be due and owing” when
Rawlings collected upon then.

Although it is true that the amounts collected were

“unliguidated,” nothing in HRS chapter 4438 limits its

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BOR PUBLICATION IN WEST'S HAWAT'I REPORTS AND PACIFIC REPORTER,

application to the collection of “liquidated” claims. The term
wunliquidated” means “not previously specified or determined.”
Black's Law Dictionary, supra at 1574, Black's defines the more
specific term “unliquidated debt” as “a debt that has not been
reduced to 2 specific amount, and about which there may be 2
dispute,” id at 433, and the term “unliquidated claim” as “a
claim in which the amount owed has not been determined.” Id. at
254. Bven though the amounts collected by Rawlings were not
“Liguidated,” Rawlings nevertheless attempted to collect

wnoney . . . alleged to be due and owing.” As its “Notice of
Lien” letter indicated, the lien claim “applie(d] to any amount
now due or which may hereafter becone payable out of recovery or
recoveries collected or to be collected, whether by judgment,
settlement or compromise, from any party hereby notified.” As
such, Rawlings clearly attempted to collect money that it alleged
was “due and oving.”*

4M ‘the distinction between “due and owing” and the “unliquidated”
status of a debt is clear from the following discussior

 

In a broad sense, ‘debt’ simply means something dus_and oxina.
Mowever, Eraditionally’ in the Lav, ie hes been given a nazrovor end nore
Hestricted meaning, A debt arises out’ of a coneractual relationship Bot
hot ali contracts result in a debt. At common lax, a tdest’ signified @
Certain or definite sum of noney. However, this nas not meant ¢
Bartlewiar fixed sum of money, bot, such a sus ae can be
Eixed data by computation, oF which is capable of being
v"SGiearly, within the purport of the rule discussed at the
beginning of this section, sun which 1s sought to be recovered by way
of sttachnent of garaishaont which is entirely hypothetical oe
Sonjectursi, and sniiguidated or uncertain ae to the amount owed, i not
fan action fora *debt” within the statutes.”

 

 

 

 

(continued...)

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Rawlings’s assertion that the amounts collected were
not in “default” at the time collection was sought is also not

relevant to our HRS § 4438-3 analysis. Rawlings’s argument

 

appears to be based on the FOCPA, and not Hawai'i law. In an
unpublished decision of the United States District Court for the
Middle District of Louisiana proffered to the court by Rawlings
at oral argument, the District Court dismissed an FDCPA claim
against Rawlings because the debt asserted was not in default at
the time it was obtained. Dantin v, The Rawlings Co., Case 3:03-
cv-00116-JVP-CN (M.D. La. Apr. 13, 2005). The court relied upon
a statutory exception to the definition of “debt collector” under
the FDCPA, according to which a party is not a debt collector if
its collection activities “concern{] a debt which was not in
default at the time it was obtained by such person. . . .” 15
U.S.C, § 1692a(6) (F) (441). The District Court in Dantin
concluded that this exception applied, because Rawlings had

obtained information from the insurance company regarding

M(, continued)
This view that the concept of ‘debt’ is opposed to an unliquidated
sum or claim was clearly expressed in Henriques v. Vinhaca, supra, 20
Haw, 702. While the claim in Zenriques was not only unliquidated in the
sense of being uncertain put aise contingent, still the fact remains
that while not contingent. the instant claim is still clearly
Gnligaidsted in that sts ascertainment requires the exercise of
Judgment, discretion and opinion and not mere calculation or
Gonputation. As indicated generally, as well as in Henrigues, the tine
for ascertainsent of the certainty of the claim, or the capacity of the
claim to be reduced to certainty, is the tine when process 1s issued.

 

¥ 47 Haw. 252, 260-61, 386 P.34 886, 689-90 (1963) (emphasis
sage)

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payments made by the company on behalf of the plaintiff one year
prior to the time at which the plaintiff received settlenent
funds from the third-party tortfeasor. Id, at 9. Therefore,
there was no “default,” i.e., the amount oved to the insurance
company based on the subrogation provision in its policy, at the

time the debt was obtained by Ravlings for collection; “default”

 

occurred only later, when the plaintiff reached a third-party
settlement. Because HRS chapter 4438 lacks the FOCPA exemption
for debts not in default at the time obtained, the Dantin case

has no relevance to Rawling

 

status as a collection agency

 

subject to the registration requirement of HRS § 4438-3.
‘Therefore, based on the undisputed facts, Rawlings is a
“collection agency” within the meaning of HRS chapter 4438,

subject to the registration requirement of HRS § 4438-3."

 

% the remaining authorities that Rawlings brought to the court’s
attention at oral argument are similarly unhelpful to ita case.

In the Stephens case, 2 Washington appellate court determined that a
credit collection agency had violated the Washington Consumer Practice
en it sent collection notices stating an parties on
Dehaif of insurance companies sho were asserting subrogation rights against

 

 

    

those parti ‘oma 159 Pes 10 (Wash. Ce. AP
2007), reconsideration denied, Fanaa v. farmers Insurance Co,, No. 56625-3-1,
2007 itash. App. LEXIS 1332 (Wash. Cty App. Hay 25, 2007), geconeideration

senies, Oar No. $7068"¢-1, 2007 Wash. APB. LEXIS
1593 wash. Ct. App. Way 25, 20071, Th Stephens, the’ Washington court
concluded that even if subrogation ‘claims are not regulated by the FOCPA,
collection activities in this area are not exenpt from the Mashington Las,
Which applies broadly to “unfair or deceptive act lel or precticels).” 1d. at
32. ‘Rawlings cited Stephens for the proposition that subrogation clains are
not voebts, which the court determined in the context of the FOCPA. 1d. at
21-22. However, not only is this analysis inapplicable to Hawati law, put
the Sianhens court also repeatedly referred to the clains at ie
“subrogation Claims," which are encompassed within the broader’
“collection agency” under HRS § 4438-1.

‘The FIC letter cited by Rawlings 1s algo inapplicable, as it merely

(cont insed, .

  

 

 

8
 

{#** FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER

B. Plaintiff: to wirements for

Bringing Suit Against Rawlings under HRS $ 460-13,

In order for Rawlings’s failure to register to be
actionable by private litigants, the threshold requirements of
HRS § 490-13 must be satisfied.

HRS § 480-13 governs lawsuits whose subject is
“anything forbidden or declared unlawful by this chapter,” HRS §
480-13(a), and “unfair or deceptive act[s] or practice(s}
forbidden or declared unlawful by section 480-2.” HRS § 480-
13(b)."* ‘The Latter provision, which concerns “consumer”
lawsuits and applies to this case, provides that

Any consumer who is {niured by any unfair or deceptive act,
or practice forbidden or declared unlawful by section 450-2:

(2) May sue for damages 2 and
(2) May bring proceedings to enjoin the unlawful practices

 

continued)
interprets the term “debt” under the FOCRA. In any event, the letter ie
Feadily distinguishable, as it concerns the collection attempts by an insurer
against 0 thira-party tortfeasor who did not receive any personal services
f¥om the ingurer, rather than collection attempts against an insured who did
Eeceive such services.

 

 

MRS § 480-2 include:
competition and unfair or
trade or coamerce are unlawst
sleo provides that!

a) No pergon other than a consumer, the attorney general or
the director Of the office of consuner protection may bring at
ction based upon unfair or deceptive acts or practices declared
unlawfal by this section,

2 declaration stating that “[ulnfair methods of
tive acts or practices in the conduct of any
re“yms'§ 480-2(a) (Supp. 2008). HRS $ 480-2

     

       

 

 

(e) Any person may bring an action based on unfair methods
of conpatition declared uniauful by this section”

 

uns § 480-2.
a9
 

WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER

   

(OW PUBLICAT
HRS $ 480-13(b) (emphases added). Any violation of chapter HRS
4438, which regulates “collection agencies," constitutes an
wunfair or deceptive act{] or practice[] in the conduct of any
trade or commerce for the purpose of section 480-2." HRS § 4438-
20 (1993).

Therefore, the relevant issues regarding Plaintiffs’
right to bring this lawsuit are (1) whether Plaintiffs were
“consumers” within the meaning of HRS § 480-13, and (2) whether
Plaintiffs were “injured” within the meaning of HRS § 480-13.
Because, based on the undisputed facts, Plaintiffs have failed to
show that they were injured, they may not bring suit under HRS §
480-13.

1. Plaintiffs are “Consumer:

 

In order to bring 2 private cause of action based on
vunfair or deceptive act(s] or practicels) forbidden or declared
unlawful by section 480-2," such as violations of HRS § 4438-3,
fone must be a “consumer” within the meaning of HRS chapter 480.
Rawlings clains that the circuit court erred in holding that the
Plaintiffs were “consumers,” because they neither purchased nor
attempted to purchase, nor were they solicited to purchase
anything from Rawlings or HMSA, as required by the definition of
"consumer." Rather than consumers, Rawlings contends that
Plaintiffs were third-party beneficiaries of employer health care
contracts with HMSA, and as such may not bring suit as consumers

20
s+ FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER ***

under our caselaw. Plaintiffs maintain, on the other hand, that
one nay qualify as @ consumer in the context of a violation of
HRS chapter 4438 by showing that the debt collected upon arose in
a consuner context. Because consumers do not typically purchase
services from collection agencies, Plaintiffs contend that
requiring such a purchase would lead to an absurd result.

aR a et

“consumer” is defined by statute to mean:

fa natural person who, primarily for personal, family, ox
household purposes, purchases, attempts to purchase, or is
Belicived to purchase goods of services or who connits
oney, Property, of services in a persenal investment «

 

HRS § 480-1 (1993).

Rawlings argues that neither of the Plaintiffs meet
this definition because neither Flores nor Rapoza purchased,
attempted to purchase, or was solicited to purchase goods or

services from Rawlings. Rather, both are participants in

 

employer health benefit plans: Flores directly as an employee of
‘Theo Davies, and Rapoza as a dependent on his wife’s plan through
her employer, the federal government. Rawlings points out that
the contracts between the employers and HMSA are exclusively
between the naned parties.

Rawlings further argues that rather than consumers,

plaintiffs are third-party beneficiaries of their employer's

contracts with NSA, and as such cannot bring suit under HRS

2
   

FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
§ 480-13. In support, Rawlings points to this court's decision
in Hough v, Pacific Insurance Co,, 83 Hawai'i 457, 927 P.2d 858
(1996), and the Intermediate Court of Appeal’s (ICA) decision in
Hunt v, First Insurance Co. of Hawai 2, 82 Hawai'i 363, 922
P.3d 976 (App. 1996).

In Hough, this court considered whether an injured
employee, who had brought multiple tort claims against the
insurer based on its conduct in handling his attempt to obtain
workers’ compensation benefits, could also bring a separate claim
for damages against the insurer based on HRS chapter 480. 63
Hawai'i at 462, 927 P.2d at 863, This court held that the
plaintiff could not bring an unfair or deceptive practice clain,
because

ough 12 not 2 consumer within the meaning of thie statute.
He did not purchase workers" compensation insurance fron
Pacific. He is a third party beneficiary of the contracts
of inaurance purchased by his employer:

   

 

Id. at 470, 927 P.2d at 871. The court further held that Hough
could also not bring a derivative third-party claim under HRS
chapter 480, because the insurer, as a corporation, was not a
consumer. id, at 471, 927 P.2d at 872. See alse Hunt, 62
Hawai" 363, 922 P.3d 976 (holding that customer of grocery
store, who was injured by slip and fall at store, could not bring
HRS chapter 480 claim against store's insurance company which had

refused payment of medical claims, because customer, not having

2
 

+++ FOR PUB!
made any purchase from the insurance company, was not a
“consumer” who could bring suit)."”

b. Plaintiffs’ arcument

Plaintiffs do not claim to have made or attempted any
purchase from Rawlings, nor do they claim that Rawlings solicited
any. Rather, Plaintiffs argue that in the context of debt
collection, the proper focus should be on whether the underlying
obligation or debt is a consumer debt, as opposed to a commercial
or business one, In other words, if the alleged debt arises in a
consumer context, then the debt holder is a “consumer” who may
bring suit under HRS § 480-13(b). Under Plaintiffs’ theory, they

would qualify as “consumers” becau

 

Rawlings was collecting on
the “loan agreement” from HMSA puzporting to advance Plaintiffs
the expenses for their medical treatment, which is akin to

“service” for “personal” purposes. See HRS § 490-1, Plaintiffs
contend that the opposite result would lead to an absurd result
and controvert the clear intent of HRS chapter 4438 to “protect
debtors from abusive collection agencies.” Sen. Comm. Rep. No.

541, in 1987 House Journal, at 1355.

» Plaintiffs claim that Houah and flunt are distinguishable because
those cases do not concern debt collection and Plaintiffs are not trying to
enforce

Plaineiete
Lbility snsvrance are for the purpos
Giaine arieing from the operation of the busine
mandated by tne state

fomployees.”

  
 
  

    

 

age is
insurance coverage for

  
 

'1 REPORTS AND PAC!

 

REPORTER

 

In support of their argument, Plaintiffs cite the
definition of “debt” in HRS § 4438-1, which they contend shows
that “in the context of debt collection, the focus is on the
nature of the alleged debt.” HRS § 4438-1 defines “debt” to mean

any cbligation or alleged obligation of » consumer to pay
honey or other forms of payment arising out of # transacticn
Ee WOLGh the’ noney, property, insurance, or services, which

‘are primarily or
personal, family, oF household purgoses, whether of not such
ebligation has been reduced to judgment.

 

HRS § 4438-1 (emphases added). Based on this definition,
Plaintiffs assert that the loan agreement from HNSA to pay for
their personal medical treatments amounts to a “transaction”

within the meaning of “debt.”

 

In the context of collection agency abuses actionable

 

under HRS § 480-13, it is unlikely that the legislature intende
to Limit the ability to sue to those who had made, attempted to
make, or were solicited to make a purchase by a collection
agency. This would be an inconsistent, if not absurd, result
that the legislature would not have intended. See Beneficial
Hawai'i, Inc v. Kida, 96 Hawa’ 289, 309, 30 P.3d 895, 914-15
(2003) ("[T)he legislature is presumed not to intend an absurd
result, and legislation will be construed to avoid, if possible,
inconsistency, contradiction, and illogicality.” (Citations and
internal quotation marks onitted.)).

HRS § 4438-20 states that any violation of chapter 4438
“shall constitute . . . unfair or deceptive acts or practices in

2
 

FOR PUBLICATION IN WEST

 

|AWATT REPORTS AND PACIFIC REPORTER
the conduct of any trade of commerce for the purpose of section
480-2." HRS § 4438-20. HRS § 480-2 in turn specifies that
consumer “may bring an action based upon unfair or deceptive acts
or practices,” HRS § 480-2(d), and the prerequisites for bringing
suit are laid out in HRS § 480-13. See HRS § 480-13(b) ("Any
consumer who is iniured by any unfair or deceptive act or
practice forbidden or declared unlawful by section 480-2. .

(2) May sue for damages . . . . ; and (2) May bring proceedings

to enjoin the unlawful practices . . .

 

By deening violations of HRS chapter 4438 an unfair or
deceptive act or practice for the purposes of HRS § 480-2, it is
evident that the legislature wished to have chapter 4438 be
enforceable in the same manner as other unfair trade practices
under chapter 480. If enforcement were limited to individuals
who had purchased, attempted to purchase, or were solicited for
purchase of a service or good from 2 collection agency,
enforcement of HRS chapter 4438 would be left entirely in the
hands of the state. In view of the expressed purpose of HRS
chapter 480 to “encourage those who have been victimized by
persons engaging in unfair or deceptive acts or practices to
prosecute their claim,” Hse, Stand, Comm. Rep. No. 541, in 1987
House Journal, at 1355, and the intent of HRS chapter 4438 to
‘protect creditors from unscrupulous or dishonest collection
agencies, and to protect debtors from abusive collection

Ea
 

agencies,” this result would not be in keeping with the statutory
structure and would appear to be the type of “inconsistent,” or
“absurd,” result that this court must presume the legislature
would not have intended."

Rather, in the context of consumer debt, the
determination of whether the individual seeking suit is 2
“consumer” should rest on whether the underlying transaction
which gave rise to the obligation was for a good or service that
is “primarily for personal, family, or household purposes,” HRS §
480-1. This reading is supported by the definition of “debt” in
HRS § 4438-1, as well as the fact that the statutory structure of
HRS chapter 480 does not require that one be 2 “consuner” of the
defendant's goods or services, but merely a “consumer.” Cf.
Elenniken v. Lonaview Bank and Trust Co., 661 S.W.24 705, 707
(Tex. 1983) (“Privity between the plaintiff and defendant is not
4 consideration in deciding the plaintiff’s status as a consumer
under the (Texas Deceptive Trade Practices Act]. A plaintiff
establishes his standing as a consumer in terns of his
relationship to a transaction, not by a contractual relationship

with the defendant. The only requirement is that the goods or

 

™ plaintit{s also suggest that were a consumer required to have made a
purchase in order to bring suit ageinst a collection agency, common

Such as denanded payment ona debt the victin never incsrrea beca
isentity theft, of demanding that a parent pay sn alleged credit card debt of
4a child away from home, would not be enforceable by individual action under
ns'§ 480-13.

    

 

26
   

‘OR PUBLICATION IN WEST'S HAWAET REPORTS AND PACIFIC REPORTER,

services sought or acquired by the consumer form the basis of his

complaint.” (Citations omitted.}).
c. the underlying purchase

In this case, Plaintiffs assert that they are
“consumers” because after receiving medical services HMSA
demanded payment in the form of an interest-free loan should they
recover from a third-party. The services received had 2
“personal” purpose within the meaning of HRS § 480-1. Cf. Adams
vs Law Offices of Stuckert & Yates, 926 F. Supp. 521, 526 (E.D.
Pa. 1996) (characterizing plaintiff's receipt of medical
treatment at a plastic surgery center as “personal medical
services,” and finding that the plaintiffs’ obligation to pay for

such services was a “debt” under the FOCPA, which requires that

 

% Arthough operating with at tse
have concluded that debt collection

works, other states
‘Co consuner laws.

 

font statutory fra
Ivities are aubje
Sea In ce Mestern Aecentonce Corp, 766 .2d 214, 216 (Idaho
$Slottineerpreting idaho consumer iaw, the coure’ conclude(a) that the

collection of 2 debt arising oot of a sale of goods or services is subject to
the provisions of the Act, even when the collection of the debe is by a third

 

   

 

 

party who hss parchasea the debt from the seller {because iJt 1s the
fale that brings the debt into existence that is the crucial event”);
wi broe"] Recovery Serss., Ines, 261 F. Supp. 24 1249, 1260 (D. Kan. 2003)

{the Fansas Suprene Court has held that ‘en independent debt collect ion

* Ss subject to the provisions of the KCPA’ if three conditions are
{a)"the debt arose from 2 consumer transaction; (2) the underlying
Consumer transaction involved @ ‘aupplier’ anda ‘consumer’ as defined inthe
KCPA; and (3) [t]he conduct complained of, either deceptive or
unconscionable, occurred during the collection of, or an attempt to collect, a
Gost sich arose from the consumer transaction and was owed by the consumer’ to
the original supplier.’"); Liaging x. May Cou, 44 Ohio Misc. 81, 83 (Ohio.
Gon, £2. 1915) ("lt 1g this court's opinion that the intent of A.C. Chapter
$31, particolarly relating to the various sections referred to, were >
prohibit certain types of consuner practices to apply from the initial contact,
Between the supplier and the consuser until the relationship terminates. In
other woFds, that relationship continues from the initial inception between
SSnsuner and supplier until, se inthis case, the debt is fully paid.")

 

 

 

 

 

 

 

 

a
 

REPORTS AND PACIFIC REPORTER *

 

the underlying transaction be “primarily for personal, family, or
household purposes”). ‘Therefore, based on the obligations
arising from the “loan agreements,” which HMSA required
Plaintiffs to sign when they received their medical treatment,
Plaintiffs appear to be “consumers.”

However, at oral argument, Rawlings asserted that the
“Loan agreement” could not be the basis of one’s “consumer”
status, arguing that the “loan agreement” was an inartfully-
titled docunent that did not create any new rights. Rather,
Rawlings contended that HMSA had pre-existing subrogation rights,
arising as a matter of ley, to some portion of the amounts that
Plaintiffs recovered from third-party tortfeasore, such that the
Joan agreenent was nothing more than a written formalization

giving Plaintiffs notice of these rights. Although the precise

This court's basic principles regarding subrogation were recently
ned, Mausts es Oba,

   

This court has defined subrogation as “the substitution of anothe:
person in the place of = creditor, so that the person in whose favor it
Is exercised succeads to the rights of the creditor in relation tothe
debt.” Eaters vu, Weatheruax, 69 Haw. 21, 27, 131 P.24 1s), 1e1 (1367)
(internal quotation marks omitted) (quoting fapena v. Kaleleonalani, 6
Haw. 573, $83 (1865)).. “When subrogation occurs, the substiture 1@ put
in all respects in the place of the party to whose rights he is
‘Subrogated. In effect, he ‘seeps into the shoes’ of the party.”

Beters, 69 law. at 27, 731 Pa2e st 161 (citations, internal qlotetion
Rarks, "snd brackets omitted); gee alec Beneficial Hawaii, inc, v. Kida,
36 Hamas's 269, s13-14, 30 P.3d 695, 91920 (OL). Subrogation Tis
broad enough to include every instance in which one party pays a debt
for which another is prisarily answerable, and whieh, in equity end. good
conscience, should have been discharged by the latter.” Peters, €9 fam
at 27, 731 P.zd at 161 (internal quotation marke, eltaticn and brackets
omitted) «

 

 

124 Hawai's 438, 483, 166 F.3d 696, 741 (2007)

2
 

‘+8 FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER.

status of the “loan agreement” was neither put at issue below nor
discussed extensively in the appellate briefings, if correct,
Rawlings’s assertion would mean that there was no underlying
transaction and that Plaintiffs were therefore not “consumers” of
medical services

Rawlings’s theory is not convincing. The “Loan
agreement” provided by HMSA and signed by Plaintiffs is also
known as a “loan receipt.” “A loan receipt is an agreement which
states that the insurance proceeds paid by the insurer to the
insured constitute an interest-free loan which must be repaid to
the extent that money is recovered in an action brought by the
Angurer in the name of the insured.” 4 Rowland H. Long, The Law
of Liability Insurance § 23.03(2) (b) {ii} (2007).

In other contexts, courts have considered whether such
loan receipts are “true loans.‘ ‘The weight of authority holds
that loan receipts are valid, although as in any agreement, the
intention of the parties should be considered. See Annotation,

ity and, of loan receipt or agreement betwe

oan receipts are used primarily to avoid what is known as the “real
perty in interest” doctrine, under which insurers who have paid to the insured
fhe entire amount of loss must sue third party tortfeasors in their own name
rother than that of the insured, which is thought to prejudice insurance
coapanies in jury trials. See 4 Long, supra, $ 23.03{2)(b]; Hawai'i Rules of
Civil Procedure Rule 17(a) ("Every action ehall be prosect

the Feal party in interest."). A loan receipt obviates this result by keeping
the insured af a real party in interest but Pequiring repayment of any funce,
recovered. 4 Long, gupta, § 23.03(2) (b] [ii]. coures have thus considered
thether loan recoigts are valid’ in order to determine whether an insurer
paying pursuant to such a loan receipt may sue in the insured’ name. id.

       

 

2
*** FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER ***

and insurer for a loan repayable to extent of insured's recovery

from another, 13 A.L.R.34 42 (1967).#

Without specific arguments to the contrary, the
plainest conclusion is that the “loan agreement” in this case
constituted a true loan that could have been enforced by HNSA.

As such, the loan agreement has created obligations, and could be
considered a form of payment for the health care Plaintiffs
received. Accordingly, Plaintiffs were “consumers” who, by
virtue of the agreement, engaged in a consumer transaction.

2, Plaintiffs Were not “Injured.”

Rawlings argues that the circuit court erred in
concluding that Plaintiffs were injured within the meaning of HRS
§ 480-13(b), primarily contending that because Plaintiffs paid
amounts that were less than their original obligations to repay
WMSA, they arguably received some benefit and could not therefore
have suffered any injury. In support of this argument, Rawlings
asserts that: (1) there vas no injury that was “fairly
traceable” to Rawlings’s alleged violations of HRS § 4438-3; (2)
this court’s decisions, as well as cases in the federal district
court following then, require that, for an injury to exist, one

must incur “private damages”; (3) this court’s decisions

 

& mere is a divergence of opinion, however, as to whether @ loan
receipt transaction constitutes a valid losn where the insurer's Liability is
absolute, In most of the cases where such a situation existed, the
transaction was deened to be a valid loan sss -” 13 B-lsf 3d gt 43.

 

20
 

#** FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER +

 

demonstrate that payment of a valid obligation does not
constitute injury; and (4) this conclusion is “consistent with
the regulatory system the Hawaii State Legislature authorized in
order to combat abusive collection practices.”

In response, Plaintiffs argue that the trial court
correctly held they were injured because the fact of payment of
money to Rawlings in response to Rawlings’s denand constituted an
injury. In support of this contention, Plaintiffs argue that:
(2) the plain text of HRS chapter 4438 does not recognize any
distinction between valid and invalid obligations that would mean
injury could only follow from payment of an invalid obligations
(2) the purpose of the law to allow individual enforcement would
be defeated if an individual could only sue on the basis of
invalid obligations; (3) Rawlings’s denand of payment without
registering was illegal, so that Plaintiffs were injured when

they paid money in response, a conclusion Plaintiffs contend is

 

in line with our caselaw as well as that of other jurisdictions:
and (4) Rawlings’s policy argument in support of limited
enforcement of HRS chapter 4438 by the Attorney General is not in
keeping with the purposes of the law and would result in
needlessly burdening the state.

As explained below, Plaintiffs’ payment of the HMSA
Lien to Rawlings does not constitute an injury for which they may
bring suit under HRS § 480-13(b).

2
 

+" FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER

a rv in the contex chapt 5

As our caselaw commands, in interpreting the standing
requirenents of HRS § 480-13(b), we must start with the language
of the statute, which allows “(]ny consumer who is injured by
any unfair or deceptive act or practice forbidden or declared
unlawful by section 480-2" to sue for damages or injunctive
relief.

The statute does not define the term “injury.” Accord
Zanakis=Pico v. Cutter Dodge, Inc., 98 Hawai'i 309, 316, 47 2.34
1222, 1229 (2002) (“HRS chapter 490 defines neither ‘injury’ nor
‘damages,’ . . . .”), Rawlings and Plaintiffs put forth two
different interpretations of what it means for a consumer to be
injured in the context of claims based on a violation of the
registration requirement of HRS § 4438-3. Plaintiffs point to
the statute, which states that “{nJo collection agency shall
collect or attempt to collect any money . . . from any person who
resides . . . in this State without first registering,” HRS §
4438-3, in support of their argument that the act of paying money
to, or being collected upon by, an unregistered collection agency
caused injury to Plaintiffs, Rawlings posits a narrover view,
that one is not injured when one pays a valid obligation to a
collection agency that has conmitted the unfair trade practice of

collecting money without registering.

2
214 FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER ***_

As none of our cases have dealt with injury in this
precise context, this court must draw on the concept of injury in
analogous cases. As a general matter, “injury” means a
“judicially-cognizable injury, that is, a harm to some legally-
protected interest.” Sierra Club v, Dep't of Transp., 115
Hawai'i 299, 321, 167 P.3d 292, 314 (2007). Our caselaw on HRS
§ 480-13 elucidates the nature of the injuries cognizable under
that statute.

As we stated in Ai v, Frank Huff Agency, Ltd., “{w]hile
proof of a violation of chapter 480 is an essential element of an
action under Sec. 480-13, the mere existence of a violation is

not sufficient ipso facto to support the action; forbidden acts

 

cannot be relevant unless they cause private damage.” 61 Haw.
607, 618, 607 P.2d 1304, 1312 (1980) (emphasis added), overruled
inpart on other grounds by Robert's Haw, Sch, Bus. Inc. ve
Jaupahoehoe Transp, Co., $1 Hawai'i 224, 982 P.2d 853 (1999);
accord Sambor v, Omnia Credit Serva., Inc., 183 F. Supp. 2d.
1234, 1244 (D. Haw. 2002).

Although these cases suggest that Plaintiffs’

allegation of injury is insufficient, because of the varying

> im Gieri vs Leticia Query Realty, Inc., this court also required
that the injerpalieges under iia § M00-14 be fairly traceable to the
Sefensant’s actions.” 80 Hawai'i 54, 66, 905 P.2d 23, 41. (2 However,
Pesause Plaintiffs were not sinjured” in the first place, causation is not at
issue herein,

  

 

 

3
 

“*** FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER

 

factual contexts of these cases a further examination of A and
Sambor is in order.
Pomete

Rawlings contends that based on Ai, there is no
cognizable injury under HRS § 480-13 when plaintiffs are not
required to make “payments beyond the amount of their existing
obligation.” (Citing Ai, 61 Haw. at 620, 607 P.2d at 1312).

In Ai, the plaintiffs brought suit against a collection
agency for preparing a promissory note, which the plaintiffs
executed and delivered to the defendant agency, that contained an
“attorney's fees” provision that violated the debt collection
laws." The note provided that in the case of default, if the
note were placed in the hands of an attorney for collection, the
plaintiffs would have to pay an attorney’s fee rate of “33 1/38
of the amount due thereon.” Ai, 61 Haw. at 610, 607 P.2d at
1307. After making nineteen payments, the plaintiffs filed a
complaint for declaratory judgment, alleging, inter alia, that
the defendant “had represented in the August promissory note that

the existing obligation of the plaintiffs might be increased by

 

Mint the tine the plaintiffs brought oult in AL, HRS § 480-13 lacked
any provision for consumer lawsuits. Rather, the plainciffs’ suit was based
fon HRS § 480-13(a), which provided at the time, as it does now, thet “lalny
Person who is injured in his business or property by reason of anything
forbidden or declared unlawful by this chapter ... . may sve for damages

ww Although a different provision, both provisions require an "injury,
and applying the concept of in pars paterisy the meaning of anjory as
interpreted by the court in Ai Ray De of assistance when Interpreting HRS
s a80"13 (8)

 

 

3
 

the addition of attorney's fees when in fact such fees could not
legally be added to the existing obligation,” in violation of the
former law on “collection agencies," and HAS chapter 480. Id.
The circuit court granted the plaintiffs’ motion for summary
judgment on this count, declared the promissory note null, void,
and unenforceable under HRS § 480-12,% and avarded damages to
the plaintiffs in the amount of $1,000 plus costs as provided by
HRS § 480-13 (a) (1). Id. The holder of the promissory note

appealed.

 

8 the complaint was based on two laws under HRS chapter 443, the
entirety of which was repealed in 1973, which was after the events of the
Stwouit in Ale 1979 Haw. Seas. L, Act 76, § 1. Ae quoted by the court, HRS §
debe44ie) provides in relevant part that:

   

Mo collection agency shall use . . . any conduet which is described as
Eoliows
(8) Any representation that an existing obligation of the debtor
or alleged debtor nay be incressed by the addition of attorney's
fees, investigation fees, service fees, ana any other fees or
charges uhen_in tact such fees or charaes may tot eaaily bs added

61 naw, BEET Rs 2, 607 F.2d at 1907 12° (quoting HRS § 443-4481)
snasis added). The plaintiffs’ HRS § 443-44(8) claim of misrepresentation
Un turn based on HRS § 443-23, which barred certain fee provisions such a5
one drafted by the defendant in Bi. HRS § 443-23, as quoted in Al, stated

A lcensee shall not collect, or attenst te collect, any
collection fee or attomey's fee of connissien fron any cebtor; provided
however, attorney's fee oF commission gay be collected after <iling ofa
LE against any debtor and such fee or comiseion shall

 

   

     

Au, 61'laws ae G10 2-3, 607 Pr2d-at 1307 n-3 {quoting HAS § ¢i-23) (emphasis
Baded) His § 443-23 is siniisr to today's HRS § 4635-9, entitled
SGofiection, attorney's, or commission fees; exception.” HRS § 4435-9 (Supp.
2008)

 

BRS § 480-12, ontitled "Contracts void," provided then, as it does
row, that [ajay contrast of agreenent in violation of this chapter is void
Gna is not enforceable at law cr in equity.” HRS '§ 480-12 (1995)

 

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On appeal, the court reviewed both whether the
plaintiffs had standing to bring the claim and whether they
should recover on the merits. With respect to standing, the
defendants had claimed that private persons did not have standing
under chapter 480 to sue, and that even if they did, “a private
plaintiff must allege and prove thet he was injured in his
business or property before damages will be assessed.” Id. at
612, 607 P.2d at 1309. Taking a broad view of “injury in...
property,” the court held that “it is sufficient that plaintiffs
allege that injury occurred to personal property through a
payment of money wrongfully induced” . . . and “accordingly
[found] plaintiffs’ allegation of injury in their property
sufficient for standing purposes under § 480-13.” Id, at 613,
607 P.2d at 1310,

Proceeding to the merits, the court concluded that the
representation in the promissory note indeed violated HRS § 443
44(8). However, the court stated:

i
essential

proof of a violation of chapter 480 4
fnent of an action under $ 480-13, th
Fg violation is not sufficient ipso f

ction: forbidden acts cannot be relevent unless

Elaintitts eccordinaly allece

 

      
 

Id. at 618, 607 P.2d at 1312 (citation omitted) (emphasis added)
In considering this allegation of injury, the court then turned

to the enforceability of the promissory note under the voidness

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\WAI'T REPORTS AND PACIFIC REPORTER,

provision of HRS § 480-12, holding that while the attorney's fee

clause was unenforceable, it could be severed and the remainder

 

of the note enforced. Id. at 620, 607 P.2d at 1312. With
respect to this remainder, the court stated:
In view of the continuing cbligaticn of the plaintiffs to

‘take payments under the note severed of its offending
Clause, and in view of the fact plaintiffs have actually

2 _pavaens i thelr extatin

Ep award of $1,000.

Id. at 620-21, 607 P.2d at 1912 (emphasis added).”” The court
thus affirmed the grant of declaratory judgment regarding the
offending clause, but reversed and remanded for further
proceedings based on its finding of no damages. Id, at 621, 607
P.ad at 1312.

Therefore, Ai tells us two things about the injury
requirement under HRS § 480-13. First, a plaintiff sufficiently
alleges injury for purposes of standing by alleging that the
plaintiff was made to pay money that was “wrongfully induced,”
such as because the pronissory note requiring payment included

illegal terms. Id. at 614, 607 P.2d at 1310. Second, an

individual suffers a cognizable injury allowing the recovery of

 

 

Tt 1s apparent that the court viewed the “injury” element as
gequiring s different showing for purposes of standing than for the question
on the merits regarding entitlenent to relief. Although the court held that
the plaintifes in Al sufficiently “allege[d] that injury occurred to persons)
property through a payment of money wrongfully induced, ig, at 613, 607 P-24
St 1810, it found no cognizable legal injury because they would not’ be
Poquired to pay any parce of the agreenent that were vold.

x
 

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damages under HRS § 480-13 when the individual is made to make
payments pursuant to a void or illegal provision of some
agreement.

Neither theory of injury applies to Plaintiffs in this
case. Unlike Ai, where the lower court had ruled that the
promissory note was void, Plaintiffs do not assert that any
agreement between it and Rawlings violated the law. Rather, they
focus on the mere fact that Rawlings attempted to collect, and
Plaintiffs accordingly paid, some portion of the Plaintiffs’
debts to HMSA. Because nothing in the underlying obligation was
void, nor is it alleged that Rawlings’s methods of collection
were wrongful, Plaintiffs’ payment of the sums did not cause
them any injury.

‘The essential difference between this case and Ai lies
in the nature of the unfair trade practice at issue. In Ai, the
collection agency had made, in the promissory note it prepared

for the plaintiffs in that case to sign, a representation

 

regarding attorney's fees that was not legally allowable under
another provision -- HRS § 443-23, see supra note 25 -- governing

the collection of attorney's fees by collection agencies. The

 

% Echoing the “wrongfully induced” language of Ai, Plaintiffs assert
that “Defendant indices Plaintiffs to pay it money by wrongfully demanding
payment without registering in violation of section 4435-3;" However,
(erengful inducement, while not 2 term of legal precision, implies sone
\erongful method or act of deceit in extracting payment, none of which occurred
here:

 

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+ FOR PUBLICATION IN WEST'S HAWALT REPORTS AND PACIFIC REPORTER.

representation therefore violated HRS § 443-44(8), see supra note
25, and the promissory agreement was partially voided under HRS §
480-12. The underlying obligation was thus tainted by an illegal
provision which would have extracted an illegal profit for the
note holder. Once this provision was removed, the plaintiffs in
Ai were required to pay on the remaining obligations of the note.

In contrast to the prohibition in Ai under the former
“collection agencies” statute, the provision at issue here does
not bear on the validity of the underlying obligation and
Anvolved no illegal representations by Rawlings such that payment
on the obligation would have caused Plaintiffs to incur private
damage. Rather, Plaintiffs had a valid loan agreement with HMSA,
which was settled through Rawlings. Although Rawlings’ s
activities in collecting money were in violation of HRS chapter
4438, the collection cannot be said to have “injured” Plaintiffs
under Ai. Cf. Zanakis-Pico, 98 Hawai'i at 318, 47 P.3d at 1231
("Deception [is] the evil that consumer fraud statutes seek to
rectify... 1").

44, Sambor
Although factually different from the instant case,
bor confirms this view. In Sambor, the plaintiff asserted

various violations of the FDCPA, and also argued that the
defendant collection agency, Omnia, violated HRS chapter 4438 by
failing to register as a collection agency. 183 F. Supp. 2d at

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2235. Sambor had an account with Capital one Services, which was
referred to Omnia for collection. Omnia called Sambor regarding
her “delinquent account” and sent a follow-up letter indicating a
balance due. Id, at 1236. After Omnia sent a return letter
disputing the debt, Omnia stopped all further collection activity
on her account. Id.

The court found that Omnia’s letter violated the FOCPA
and awarded statutory damages. The court also noted that Sanbor
had not shown that she suffered any actual damages, discounting
the expenses she incurred in determining whether Onnia’s activity
was illegal as well as the postage costs incurred in sending
omnia a letter. Jd, at 1241. Finding that Omnia had violated
the registration requirenent, the District Court stated that
“[t]o recover under section 480-13, however, a plaintiff must
demonstrate damages caused by the violation.” Id. at 1244
(citing Ai) (emphasis added). Because Sanbor had not established
any actual damages as a result of Omnia’s violation, the court
denied her HRS § 480-13 claim. Id, at 1245.

Plaintiffs point out that Sambor is distinguishable
from the present case because Sanbor did not pay any money to the
collection agent. While this is true, Plaintiffs nevertheless

fail to show any damag

 

as a result of their payment to Rawlings
based on their obligations to HMSA. Just as the “attempt to
collect” money in Sambor did not, without more, cause any damage

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to Sanbor, likewise the actual collection, by Rawlings, of
amounts Plaintiffs owed to HMSA did not cause any damage to

* Therefore, Plaintiffs have not demonstrated that

Plaintiffs.
they were injured as result of Rawlings’s violation of HRS $
4438-3. See also Higinton v. Pacific Credit Corp. 2 Haw. App.
435, 444, 445, 634 P.2d 111, 118, 119 (2981) (stating that injury
exists, under prior version of HRS § 480-13, if “expenses were
incurred because of the statutory violation and not because of a
valid debt” and framing the issue in that case as whether the
plaintiff “was wrongfully induced by the statutory violation(s)

to pay money on a debt that was not owed or to incur expenses

that would not otherwise have been incurred”); cf. Fuller vs Pac.

 

% plaintiffs have also relied on Keli vy. Universal Fidelity Corp., No.
civ, 96-00366ACK, 1997 WL 33620142 (0, Naw. Feb, 25, 1997), an onroperted
Secision of the United States District Court for the district of Hawai'i that

sd Sambar. “The plaintiff in Keli had brought suit under the FOCPA and
fserted that the defendant had violated ins § y failing to be
‘Id at +1. The court awarded statutory damages on this latter
Count in the amount Of $1,000 to the plaintiff. However, the court did not
Consider whether the plaintiff was injured or whether the puaintiff had
Suffered actual danages. Io fact, the court in Sambar precisely noted this
fact, snd concludea thet “[i]f statutory damages were awarded in Keli in the
Absence of actual danages, this court declines to follow Keli on this point.”
Sanbor, 183°F. Supp. 24 at 1245 1.12.

 

 

     

 

 

 

% tn favor of thelr theory of injury, Plaintiffs also cite to several
unpublished federal district court cases interpreting Connecticut’ s Untsir,
Practices Act, as well as federal district court cases interpreting the
federal Fair Debt Collection Practices Act. However, Plaintiffs fail to
provide any basis for isporting foreign lau into the interpretation of Hawad"t
Statutes, by, for example, showing that the lows are similar. Moreover,
Plaintiffs do not demonstrate that these cases support their claim that ‘money
paid to an unregistered collection agent itself constituves injury. Finally,
Ehe vast majority of state courts have held “that the claimant mst establish
thet it suffered damages, harm, or loss a5 2 result of the deceptive, unfair,
or iulegal act or practice under the consumer protection act before the

 

 

 

Court." Gee Annotation, ate Act
Exotectson Sct“ Preconditsons so Aatien, iI? Arb.# Stn 188 To00d)

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Mec. Collections, Inc., 78 Hawai'i 213, 221, 691 P.2d 300, 308
(app. 1995) (Acoba, J., dissenting in part) ("Because there can
be no injury to Plaintiffs by the collection agency's failure to
remit all attorney’s fees collected on the judgment to its own
attorney, the requirement that there be such injury under HRS §
480-13(b) is not satisfied.”).

b. purposive and policy arguments

Notwithstanding our conclusion that Plaintiffs have
failed to demonstrate an injury based on our caselaw, the
purposive and policy arguments advanced by Plaintiffs do not
point to a different conclusion. In addition to the Language of
the statute, Plaintiffs assert that failing to find injury in
this case would controvert the purpose of HRS chapter 4438.
Specifically, Plaintiffs claim that if Rawlings’s view that one
is not injured for paying a valid debt were adopted, HRS chapter
4438 would be rendered “virtually unenforceable by the victims of
Allegal collection activities.” Plaintiffs also claim that
Limiting enforcement of chapter 4438 to the Attorney General
would needlessly burden the state.

First, requiring some injury beyond payment of a valid
underlying obligation that was not wrongfully induced does not
bar consumer enforcement of all of chapter 4438. Several
provisions of that chapter concern methods of collection that are
in themselves injurious. For example, HRS § 4438-9, an analogue

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of the attorney's fee statute at issue in Ai, see supra note 25,
bars the collection of excessive fees by collection agencies.

HRS § 4438-15 (1993) prohibits collection by means of “any
threat, coercion, or attempt to coerce,” and expressly bars five
iterations of such conduct. HRS § 4435-18 prohibits the “use
(of] any fraudulent, deceptive, or misleading representation or
means to collect, or attempt to collect, claims or to obtain
information concerning a debtor or alleged debtor” and includes
nine types of representations that are expressly prohibited. HRS
§ 4438-18 (Supp. 2006). The title of remaining sections of
chapter 4438 express similar prohibitions on certain means of
collecting: HRS § 4438-16 (1993), “Harassment and abuse”; HRS §
4438-17 (1993), “Unreasonable publication”; and HRS § 4438-19
(1993), “Unfair or unconscionable means.”
Second, denying individual enforcement of valid debts

collected by an unregistered collection agency, where no

 

% sinilar observations were made by Justice Acobs, who wrote 2
dissenting opinion in Dulles. Then-ICA Judge Acoba argued that the structure
Sf chapter 4438 supported & Conclusion that sone provisions were more amenable
fo individeal enforcement than others!

 

Chapter 4438 (Supp.1952) is organized as follows: (1) definitions ( HRS
$'4838-1), (2) declaration of the powers and duties of the director of
Commerce and consumer affaire (HRS S 4436-2), (3) provisions selating to
Fequirements for operating a collection agency (HRS §§ 4435-3 to =6),

{4} provisions relating t9 sgency clients (creditors) and HRS § 4436-9
(iRS'§5 4430-8 Co 11), (5) provisions relating to criminal prosecution
dnd other remedies (HRG $§ 4438-12 to -18),. (6) provisions setting forth
prohibited acts against debtors (HRS $5 4435-15 to -15), and (7) the
Brovision thst any violation of the chapter is an unfair method of
Competition and an unfair or deceptive act (HRS § 4435-20).

78 Hawai'i at 222 n.9, 891 P.2d at 309 2.9 (Rcobs, J., dissenting in part)

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WALREPORTS AND PACIFIC REPORTER

   

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inJurious method of collection was alleged or shown, does not
abrogate the purpose of chapter 4438. Justice Acoba, then an ICA

judge, discussed the legislative history of this chapter in

euller:

 

In 1987, the legislature enacted chapter 4438 to provide
“general regulation of collection practices(,)" to sprotect
cfeditors fom unscrupulous or dishonest collection
agencies, and to protest debtors from abusive collection

3 {.]" ‘ilge. Stand. Coma. Rep, No. S41, in 196? House

£1355." provisions like 4438-3 involve the

genersi“ regulation of collection agencies and. are
Shforeeable by the director

 

 

     

 

78 Hawai'i at 221-22, 891 P.2d at 308-09 (Acoba, J., dissenting
in part). This court has also discussed the purpose of chapter
480, which allows enforcement of chapter 4438:

HRS chapter 480"s parazount purpose was to Tencourage those
Who have been victimized by persons engaging in unfair or
deceptive acts of practices to prosecute their clais,"
thereby affording "an additional deterrent to those who
would practice unfair and deceptive business acts.” "Sen.
Stand.” Comm. Rep, No. 600, in 1968 Senate Journal, at titi;

Stand. Comm: Rep. No. 661, in 1969 House Journal, at
be2-0e3.

‘The foregoing statutory construction ie consistent
with HRS chapter 60's function as a nechanigm for absting
Practices that potentially iniure consusers in general.

 

 

Zanakis-Pico, 98 Hawai'i at 317, 47 P.3d at 1230 (emphases added).

Although a consumer may sue an unregistered agency who

 

also causes the consumer sone injury -- either by charging a
prohibited fee, a,c, HRS § 4438-9, or by attempting to collect in
a way that causes non-economic injury -- without an “injury,”
enforcement of HRS § 4438-3 is in the hands of the Attorney
General and the Director of the Office of Consumer Protection.
HRS § 480-2(d) (1993). As stated by then-Judge Acoba in Fuller,

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HRS § 4438-3, Like the provision analyzed in Buller, “is one of
those sections in chapter 4438 concerned with the general
regulation of collection agencies, and not . . . a section such
as HRS §§ 4438-15 to -19, which has to do with prohibited acts
involving debtors,” and which therefore allows for individual
enforcement, 78 Hawai'i at 222, 891 P.2d at 309 (Acoba, J.,
dissenting in part). As such, Ravlings’s conduct in violation of
HRS § 4438-3, while injurious to the state's interest in
regulation of collection agencies, did not directly harm
Plaintiffs.

Therefore, Plaintiffs have not denonstrated any
“injury” and may not bring suit for their claim under HRS § 480-
13 0b).

Iv. coNcLUsTON

Based on the foregoing, we vacate the circuit court’s
interlocutory order and remand to the circuit court with
instructions to enter an order granting summary judgment in favor
of Rawlings.
Thomas R. Grande,
(Jeffrey P. Crabtree,
and Norman K.K. Lau, on the
brief; substituted 10/9/07);
(Margery 8. Bronster, Robert
Hatch, and Jeannette #.
Castagnetti of Bronster,
Crabtree & Hoshibata, on the
brief; withdrew 10/8/07) for

Plaintiffs~Appellees Albert
Flores and Donald Rapoza

 

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iesa H. Andrews
(Devon i. Peterson

of Rush Moore LLP with
her on the briefs)

for Defendant-Appellant
The Rawlings Company, LLC

“