In the

United States Court of Appeals

For the Seventh Circuit

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Nos. 04-1509 & 04-1637

RIDDLE & ASSOCIATES, P.C.,

Plaintiff-Appellee,

v.

JUDITH A. KELLY,

Defendant.

APPEALS OF:

EDELMAN, COMBS & LATTURNER,

Appellant, Cross-Appellee,

and

DAVID L. HARTSELL and ROSS & HARDIES,

Cross-Appellants.

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Appeals from the United States District Court for

the Northern District of Illinois, Eastern Division.

No. 00 C 6435—Blanche M. Manning, Judge.

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ARGUED APRIL 14, 2005—DECIDED JULY 18, 2005

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Before COFFEY, RIPPLE, and KANNE, Circuit Judges.

KANNE, Circuit Judge. This case involves cross-appeals

by two law firms over the imposition of—and failure to
2 Nos. 04-1509 & 04-1637

impose—sanctions under 28 U.S.C. § 1927. Edelman,

Combs & Latturner (“Edelman”) was sanctioned by the

district court and ordered to pay the plaintiff, Riddle &

Associates (“Riddle”), the attorneys’ fees and costs arising

out of the underlying declaratory judgment action. In a

counterclaim in the same lawsuit, the district court declined

the request by David L. Hartsell and Ross & Hardies

(collectively, “Ross & Hardies”) to impose sanctions against

Edelman. Thus, although the firm prevailed in its defense

of the counterclaim against it, it was unsuccessful in its

pursuit of sanctions against Edelman. In this appeal, the

original parties are virtual bystanders while Edelman and

Ross & Hardies battle over the issue of whether attorneys’

fees and costs were properly awarded or denied.

By way of background, Judith A. Kelly wrote a bad check

to a riverboat casino in Aurora, Illinois. Because Kelly

failed to cover the $100 check, Riddle, a Utah law firm, was

retained to collect the debt. Riddle sent a collection notice

to Kelly and demanded payment of $125, which included

the original debt and a $25 service charge. Kelly did not

respond to the notice for 10 months. In the meantime,

rather than pay or dispute the debt, she availed herself of

the services of Edelman. Then, on August 17, 2000, Daniel

Edelman of that law firm sent a letter to Riddle threatening

to sue Riddle under § 1692g of the Fair Debt Collection

Practices Act (“FDCPA”), 15 U.S.C. §§ 1962 et seq. The

Edelman letter claimed that Riddle’s collection notice

contradicted and overshadowed Kelly’s right to dispute the

debt. Edelman’s letter demanded that Riddle pay $3000

($1000 to Kelly for damages and $2000 to Edelman for attorneys’ fees) in order to avoid a lawsuit.

Riddle’s attorney, David Hartsell, a member of the Ross

& Hardies law firm, sent a letter to Daniel Edelman on

October 4, 2000, rejecting his demand for $3000 and

advising that “if you file suit over this matter, we will most

assuredly seek sanctions . . . on the ground that such lawsuit was brought in bad faith and for purposes of harassment.” Hartsell also demanded $500 in attorneys’ fees and
Nos. 04-1509 & 04-1637 3

1 As to the FDCPA counterclaim against Riddle alleging a false

threat of litigation, the court denied Riddle’s motion for summary

judgment. That remaining counterclaim went to trial and Riddle

won a jury verdict in its favor.

costs and noted that if payment was not received within one

week, his client would “pursue [its] rights through all

legally available means.”

Edelman did not respond to Hartsell’s letter, and on

October 17, 2000, Riddle brought an action against Kelly

under the Declaratory Judgment Act, 28 U.S.C. § 2201.

Riddle asked the court to declare that its collection letter

did not violate § 1692g of the FDCPA by “overshadowing or

contradicting” Kelly’s right to dispute the debt.

On the next day, Kelly filed an answer in the declaratory

judgment action. In addition, she asserted a counterclaim

against Riddle, alleging that the $125 demand letter to

Kelly contained a false threat of litigation in violation of

§ 1692e. In the counterclaim Riddle did not raise the

§ 1692g overshadowing issue. Kelly also asserted an additional counterclaim against Ross & Hardies, claiming that

the letter Hartsell sent to Edelman on October 4 was an

attempt to collect money from Kelly and therefore violated

the FDCPA.

On September 28, 2001, the district court granted

summary judgment in favor of Riddle on its declaratory

judgment claim, finding that Riddle’s letter was “virtually

identical” to the “safe haven” letter that this court suggested in Bartlett v. Heibl, 128 F.3d 497, 501-02 (7th Cir.

1997).

With regard to the FDCPA counterclaim against Ross &

Hardies, the court granted its motion to dismiss because the

October 4 letter was directed to Edelman, not Kelly;

therefore, the letter did not come within the scope of the

FDCPA.1
4 Nos. 04-1509 & 04-1637

On October 11, 2001, pursuant to a motion filed by Riddle,

the district court imposed sanctions against Edelman,

finding that Edelman “was trying to extort money from

Riddle by saying it would go away for $3000, even though

it could not have believed that its overshadowing argument

had any chance of success in court.” Further, the court

found that Edelman’s “actions in threatening to file a

baseless suit and opposing the motion for summary judgment as to the overshadowing claim were objectively and

subjectively egregious and multiplied the proceedings

unreasonably and vexatiously.”

The court denied the petition for sanctions against

Edelman that was filed by Ross & Hardies, reasoning that

although the FDCPA counterclaim against Ross & Hardies

was not a winner, it was “not in the same league as what

the court can only characterize as an extortion attempt

by [Edelman] based on the frivolous but hotly litigated

overshadowing argument”; thus, fees and costs were not

awarded to Ross & Hardies in connection with its successful

defense of the FDCPA claim against the firm.

Subsequent to the resolution of all other claims, Kelly’s

motion for reconsideration was denied, and on February 20,

2004, the court ruled that Riddle’s fee petition was reasonable and Edelman was ordered to pay Riddle $18,037.22 in

attorneys’ fees and costs.

Riddle’s Request for Sanctions

The district court sanctioned Edelman pursuant to 28

U.S.C. § 1927. We review this order under the deferential

abuse of discretion standard. See Kapco Mfg. Co. v. C & O

Enters., Inc., 886 F.2d 1485, 1491 (7th Cir. 1989). “This

court need only inquire whether any reasonable person

could agree with the district court’s sanction award.” Id.

The purpose of § 1927 “is to deter frivolous litigation and

abusive practices by attorneys and to ensure that those who
Nos. 04-1509 & 04-1637 5

create unnecessary costs also bear them.” Id. (citations

omitted). The statute reads as follows: “Any attorney . . .

who so multiplies the proceedings in any case unreasonably

and vexatiously may be required by the court to satisfy

personally the excess costs, expenses, and attorneys’ fees

reasonably incurred because of such conduct.” 28 U.S.C. §

1927. “If a lawyer pursues a path that a reasonably careful

attorney would have known, after appropriate inquiry, to be

unsound, the conduct is objectively unreasonable and

vexatious.” Kapco, 886 F.2d at 1491 (quotation omitted).

The initial letter from Edelman accused Riddle of violating a section of the FDCPA which requires that the debt

collector provide the consumer with a “validation notice”

explaining the right to dispute the debt or to demand verification of the debt. See 15 U.S.C. § 1692g(a). In relaying

this information, the debt collector has an “implied duty to

avoid confusing the unsophisticated consumer [that] can be

violated by contradicting or ‘overshadowing’ the required

notice.” Bartlett, 128 F.3d at 500.

Because the words “contradicting or overshadowing” do

not provide much guidance to debt collectors, we set forth

in Bartlett a sample form of explicit language that would

provide a proper validation notice. Id. at 501-02. Then we

instructed that “[d]ebt collectors who want to avoid suits by

disgruntled debtors standing on their statutory rights

would be well advised to stick close to the form that we

have drafted. It will be a safe haven for them, at least in the

Seventh Circuit.” Id. at 502.

It bears repeating that the district court found that the

collection notice Riddle sent to Kelly was “virtually identical” to the Bartlett safe haven letter. We certainly agree.

Edelman apparently did not believe what we said in

Bartlett—we do. There was no conceivable basis for a

§ 1692g claim.
6 Nos. 04-1509 & 04-1637

In light of Edelman’s letter, and with no resolution in

sight, Riddle filed a declaratory judgment action asking for

a judicial determination that its collection letter was

protected by the Bartlett safe haven. Edelman now claims

that by the time Riddle filed its declaratory judgment

action, Kelly had decided not to bring suit against Riddle,

and that “we would not be here today had Riddle decided to

leave well enough alone.” The district court aptly noted that

this argument is “analogous to a matador waving a red cape

at a bull and then professing to be surprised when the bull

charges him.”

Edelman further argues that Riddle should not have been

permitted to file the declaratory judgment action because it

should have waited for Kelly to file suit and then used its

arguments as a defense to the claim. Edelman cites

Buntrock v. SEC, 347 F.3d 995, 997 (7th Cir. 2003), for the

proposition that “defendants must not be allowed to turn

every case in which there is a defense into two cases.”

Buntrock’s situation, however, was not the same as

Riddle’s. Buntrock filed a preemptive suit, asking the court

to stay a lawsuit that the SEC was preparing to file against

him. Id. at 996. We found that there was no subject matter

jurisdiction for such a claim. Id. In contrast, Riddle did

have a legally cognizable basis on which to file the declaratory judgment action. See 28 U.S.C. § 2201 (stating that

“any court . . . may declare the rights and other legal

relations of any interested party seeking such declaration”).

Although Edelman alleges otherwise, Kelly did not ever

“clearly abandon” her overshadowing claim. It is true that

Edelman did not affirmatively raise the issue in Kelly’s

counterclaim, but he did nothing to make it clear to the district court or Riddle that Kelly was not contesting summary

judgment on the issue of overshadowing. In fact, Edelman

argued in Kelly’s memorandum in opposition to Riddle’s

motion for summary judgment on the overshadowing claim

that Riddle’s motion was “without merit.” Edelman could
Nos. 04-1509 & 04-1637 7

have easily moved to dismiss the summary judgment action

as moot. Instead, Edelman multiplied the proceedings by

filing counterclaims and contesting summary judgment.

Edelman insists that Kelly never litigated the overshadowing issue and thus she cannot be responsible for fees

relating to it. We find that Edelman is responsible for

causing the suit to be filed and for allowing the litigation to

continue when it knew that Kelly could not win. When

Edelman demanded $3000 to release a blatantly frivolous

claim, the firm pursued a path that it should have known

was improper; therefore, its conduct was “objectively unreasonable and vexatious.” Kapco, 886 F.2d at 1491 (quotation

omitted). Because we find that a reasonable person could

agree with the district court’s decision to order Edelman to

pay fees and costs relating to the overshadowing issue, the

district court’s decision was proper and we will affirm the

sanction award.

Ross & Hardies’s Request for Sanctions

We now address the request for fees relating to the counterclaim against Ross & Hardies. As explained previously,

Kelly’s counterclaim alleged that Hartsell’s October 4 letter

to Edelman requesting $500 in attorneys’ fees made a

“claim for money” against Kelly that violated the FDCPA.

The district court dismissed this claim with little discussion

because the demand was made “on Kelly’s lawyer

[Edelman], not on Kelly herself,” and therefore provided no

basis for an FDCPA claim.

Edelman argues that although the letter was addressed

to Daniel Edelman, it was in reference to Kelly’s case and

so the demand for money was directed to her. A close read

of the letter, however, makes it clear that Ross & Hardies

was demanding $500 in attorneys’ fees from Edelman, not

from Kelly.
8 Nos. 04-1509 & 04-1637

The letter points out that Edelman surely must be familiar with the Bartlett safe haven letter, and that if Edelman

had read Riddle’s letter with any care, he would have seen

“that it is virtually identical to Judge Posner’s ‘safe harbor’

letter.” The Hartsell letter further states: “We find it difficult to believe that this is an honest mistake, coming from

such an experienced FDCPA practitioner as yourself. We

also reject your claim that you have incurred $2000 in

attorneys’ fees for, at most, reviewing a one-page collection

letter and then writing a three-paragraph demand letter.”

Edelman, not Kelly, was the “experienced FDCPA practitioner.” There is no doubt that Edelman’s conduct produced

the demand from Ross & Hardies, for as the letter stated,

“[w]e believe that your letter to Riddle is what gives rise to

a cause of action . . . .”

The FDCPA was created to protect consumers from abusive practices by debt collectors. See 15 U.S.C. § 1692(e).

“The term ‘consumer’ means any natural person obligated

or allegedly obligated to pay any debt.” 15 U.S.C.

§ 1692a(3). Because the letter from Hartsell was not directed to the consumer, Kelly, and was distinct from any

debt, the FDCPA is not implicated.

Again, we find that a reasonably careful attorney should

have known that the counterclaim against Ross & Hardies

was without merit. See Kapco, 886 F.2d at 1491 (quotation

omitted). The claim multiplied the proceedings unreasonably and vexatiously, and “those who create unnecessary

costs [must] also bear them.” Id. In fact, “[s]o clear is it that

[Edelman] filed a frivolous [counterclaim] . . . in order to

complicate this already far too complicated and absurdly

protracted litigation, to the cost of [Riddle and its counsel],

that the district judge committed an abuse of discretion in

refusing to sanction” Edelman under § 1927. IDS Life Ins.

Co. v. Royal Alliance Assocs., Inc., 266 F.3d 645, 654 (7th

Cir. 2001). Thus, contrary to the decision of the district

court, Ross & Hardies is entitled to fees and costs relating
Nos. 04-1509 & 04-1637 9

to its successful defense of the counterclaim against the

firm. Edelman’s conduct regarding Ross & Hardies was in

the same vein as its conduct with regard to Riddle. The

district court correctly awarded sanctions against Edelman

and in favor of Riddle; however, the district court abused its

discretion in arriving at a different conclusion with regard

to the award of sanctions in favor of Ross & Hardies.

Conclusion

For the reasons set forth in this opinion, we AFFIRM the

district court’s decision to grant Riddle’s motion and

sanction Edelman. We find that $18,037.22 is a reasonable

and appropriate award for attorneys’ fees and costs relating

to the declaratory judgment claim. We also find that

Edelman should have been sanctioned and required to pay

the fees and costs relating to the counterclaim against Ross

& Hardies; we REVERSE the denial of Ross & Hardies’s

request for fees and costs and REMAND this matter to the

district court for a determination, consistent with this opinion, of what sanctions are appropriate.
10 Nos. 04-1509 & 04-1637

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—7-18-05