In the

United States Court of Appeals

For the Seventh Circuit

No. 07-4083

MARVIN SEEGER, BRADLEY GAMROTH,

ROBERT MCCLAIN, and JOANNE BLAREK,

on behalf of themselves and all others 

similarly situated,

Plaintiffs-Appellees,

v.

AFNI, INC.,

Defendant-Appellant.

 ____________

Appeal from the United States District Court 

for the Eastern District of Wisconsin.

No. 05-C-0714—William E. Callahan, Jr., Magistrate Judge.

 ____________

ARGUED SEPTEMBER 9, 2008—DECIDED DECEMBER 8, 2008

 ____________

Before BAUER, CUDAHY, and WOOD, Circuit Judges.

WOOD, Circuit Judge. This case involves the legality of

the methods that AFNI, Inc., uses when it undertakes

collection efforts—in this instance, on behalf of Cingular

Wireless. (After the events in this case, Cingular was
2 No. 07-4083

acquired by AT&T; for the sake of consistency with the

district court’s opinion, we refer to it here by its former

name.) The district court certified a class of customers in

the state of Wisconsin who had received a collection letter

during a specified time. The class took the position that

AFNI’s practices violated both Wisconsin law and the Fair

Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692

et seq. On cross-motions for summary judgment, the district

court ruled that AFNI had not violated Wis. Stat. § 422.202

when it imposed its collection fee, because the cell phone

contract was not a “consumer credit transaction.” The

court also ruled, however, that the plaintiff class was

entitled to summary judgment on its claims under the

FDCPA and Wis. Stat. § 427.104(j), because neither AFNI’s

contracts with its customers nor Wisconsin law authorized

it to charge the type of collection fee it was using. Plaintiffs

were willing to let well enough alone with respect to their

defeat on the § 422.202 theory, but AFNI has appealed the

judgment in favor of the class. Although we can imagine

hypothetical facts under which AFNI would be entitled to

prevail, AFNI did not present such a record to the district

court. We therefore affirm.

I

Marvin Seeger, Bradley Gamroth, Robert McClain, and

Joanne Blarek each entered into an agreement with the

former Cingular Wireless, Ameritech Mobile Communications, or Worldcom, for cellular telephone service. Seeger’s

contract was with Cingular; it was a monthly plan that

included 800 “anytime” minutes and imposed extra
No. 07-4083 3

charges for additional time used. The other three named

plaintiffs had similar plans with their carriers. At some

point, each one fell behind in his or her payments.

AFNI is a debt collection company that purchases

accounts from some of its customers. The original contracts

between each plaintiff and the cellular telephone provider

contained language addressing the possible use of a

collection agency. Some Cingular contracts had this to say:

You agree to pay to CINGULAR the fees of any

collection agency, which may be based on a percentage

at a maximum of 33% of the debt, and all costs and

expenses, including reasonable attorneys’ fees and

court costs, incurred by CINGULAR in exercising any

of its rights and remedies when enforcing any provisions of this Agreement.

Other Cingular contracts said only that “[y]ou agree to

reimburse us the fees of any collection agency, which may

be based on a percentage at a maximum of 33% of the debt,

and all costs and expenses, including reasonable attorneys’

fees, we incur in such collection efforts.” The contracts also

contained various provisions making it clear that failure to

pay was cause for termination of the contract and that an

early termination fee or cancellation fee would be imposed.

Between September 2004 and June 2005, AFNI sent debt

collection letters to Seeger, Gamroth, and McClain, informing each one that he owed a debt and that Cingular was the

original creditor. (The parties dispute whether Blarek

received that first letter.) AFNI’s letter stated that the

recipient was responsible for paying AFNI a collection fee

of 15% of the “original balance.” Some time later, McClain
4 No. 07-4083

and Blarek received another form letter from AFNI; the

second letter included the collection fee in the balance due.

In keeping with its normal practice, Cingular had sold

these accounts to AFNI. As part of the transfer, Cingular

furnished account information to AFNI on a CD-ROM, and

the information on the CD was then uploaded to AFNI’s

system. The information transmitted by Cingular said

nothing about any collection fees that AFNI might or might

not charge. 

On July 7, 2005, Seeger and Gamroth filed a complaint

against AFNI, alleging that its attempt to include a separate collection fee in the amount due violated the FDCPA.

On November 29, 2005, they filed an amended complaint

that both added McClain and Blarek as plaintiffs and

included charges under the Wisconsin Consumer Act, Wis.

Stat. §§ 421-425. Six months later, the plaintiffs moved for

class certification. The district court (acting through a

magistrate judge, by consent of the parties) granted their

motion and defined the class as follows:

(a) All natural persons in the State of Wisconsin (b)

who were sent a collection letter by AFNI claiming a

collection fee (c) for Cingular telephone service or

service of another cellular provider transferred to

Cingular, (d) obtained for personal, family or household purposes, (e) which originally included a contract

for a minimum term of service of one or more years,

and “early cancellation fee” of any amount, (f) on or

after July 7, 2004, (g) that was not returned by the

postal service.

As noted above, the district court later granted summary

judgment in the class’s favor, ruling that AFNI’s actions
No. 07-4083 5

violated the FDCPA because neither the contracts nor

Wisconsin law permitted the owner of a debt to impose a

separate fee for collection, if the fee was for the purpose of

reimbursing the owner itself as opposed to a third-party

debt collector. This also meant, the district court concluded, that AFNI had violated the Wisconsin Consumer

Act’s provision prohibiting a debt collector from trying to

enforce a right it knows or has reason to know does not

exist. See Wis. Stat. § 427.104(j). AFNI now challenges those

rulings on appeal. We review the district court’s grant of

summary judgment de novo, examining the record in the

light most favorable to the non-moving party. Sound of

Music Co. v. 3M, 377 F.3d 910, 914 (7th Cir. 2007).

II

In order to be entitled to collect a fee, AFNI must show

that the fee is either authorized by the governing contract

or that it is permitted by Wisconsin law. See 15 U.S.C.

§ 1692f(1). In AFNI’s view, the district court erred when it

rejected each one of these alternatives.

A

We consider first whether Wisconsin law allows a debt

collector in AFNI’s position to impose the 15% fee that

AFNI wanted to charge. AFNI argues that the fee falls

within the definition of incidental or consequential damages for the customer’s breach of the underlying contract.

Therefore, it reasons, the fee may be collected by an entity

that purchases the contract for collection purposes. 
6 No. 07-4083

AFNI is correct to point out that Wisconsin (like every

state) permits recovery of losses that are the natural and

probable result of the breach of a contract and that were

within the reasonable contemplation of the parties.

Magestro v. N. Star Envtl. Const., 649 N.W.2d 722, 725-26

(Wis. Ct. App. 2002); Peterson v. Cornerstone Prop. Dev., LLC,

720 N.W.2d 716, 730 (Wis. Ct. App. 2006). This rule applies

to service contracts like the plaintiffs’ cell phone contracts,

just as it applies to employment and construction contracts.

See Handicapped Children’s Educ. Bd. v. Lukaszewski, 332

N.W.2d 774, 778 (Wis. 1983). 

The fact that Wisconsin follows this well established rule

is not enough, by itself, to allow AFNI to recover. It must

show that this rule permits a third-party purchaser of an

account to recover its internal costs to recover the debt in

this manner, and, if so, that the 15% fee it charged to the

plaintiffs reflected AFNI’s actual costs. To establish the

first proposition, AFNI relies heavily on the Second Circuit’s decision in Tuttle v. Equifax Check, 190 F.3d 9 (2d Cir.

1999). In Tuttle, the plaintiff, while he was standing just

under a prominent sign warning that a collection fee of $20

would be imposed for dishonored checks, wrote a check for

approximately $57 at a hardware store. His check, though

authorized by Equifax, later bounced. Under the contract

between Equifax and the store, Equifax guaranteed all

checks that it authorized. When a check was dishonored,

Equifax was obligated to purchase it at face value and then

pursue collection efforts on its own. 

Tuttle asserted that Equifax was not entitled to collect a

$20 fee in conjunction with its effort to collect on the $57
No. 07-4083 7

check, but the jury rejected his arguments and the Second

Circuit affirmed. The court found that Connecticut law

authorized the collection of the fee:

Article 2 of the UCC, as adopted in Connecticut,

provides that “[w]hen the buyer fails to pay the price

as it becomes due the seller may recover, together with

any incidental damages under section 42a-2-710, the

price . . . of goods accepted.” Conn. Gen. Stat.

§ 42a-2-709. The “incidental damages” permitted under

§ 42a-2-709 “include any commercially reasonable

charges, expenses or commissions . . . otherwise

resulting from the breach,” id. § 42a-2-710, and may be

recovered by a seller or by a “person in the position of a

seller,” id. § 42a-2-707. The latter includes (as the

commentary advises) “a financing agency which has

acquired documents . . . by discounting a draft for the

seller. . . .” Conn. Gen. Stat. Ann. § 42a-2-707, comment

(West 1990 & Supp. 1999). More generally, a “financing

agency” is defined in the UCC as one “who in the

ordinary course of business . . . by arrangement with

either the seller or the buyer intervenes in ordinary

course to make or collect payment due or claimed

under the contract for sale.” Conn. Gen. Stat.

§ 42a-2-104.

190 F.3d at 14-15 (emphasis added). In the alternative, the

court found that Tuttle had agreed to the imposition of the

collection fee when, in full view of the sign alerting him to

the $20 fee, he tendered his check. 

Neither a law expressly permitting a collection fee on

behalf of a person in the position of a seller of cellular
8 No. 07-4083

telephone services nor an agreement between the class

members and their cellular providers exists here. That

might not matter if the record contained any information

that would indicate whether or not the 15% collection fee

AFNI imposed can properly be characterized as incidental

or consequential damages resulting from the plaintiffs’

breach of their cellular phone contracts with Cingular. But

it does not. The record does not even reveal whether AFNI

paid 100 cents on the dollar for Cingular’s delinquent

accounts, or if (as is common), it purchased the portfolio of

accounts at a discount, thereby compensating itself up

front for the expense of its collection efforts and the risk

that some accounts might prove to be uncollectible. From

Cingular’s point of view, the incidental or consequential

damage from its customer’s failure to pay is the discount

it had to absorb, if any existed, when it sold the debt to

AFNI. But the record contains no evidence that would

support the proposition that there was any discount, much

less whether it equaled 15% of the face amount of the

debts, or any other amount for that matter. The record also

does not reveal whether AFNI’s business model involved

some combination of the 15% fee and a discount on

accounts it purchased. In short, AFNI failed to present the

necessary evidence that would permit a fact-finder to

conclude that AFNI’s cost of debt collection should be

characterized as an incidental or consequential expense of

the customer’s underlying breach of his or her contract

with Cingular.

For the sake of completeness, we add that the Wisconsin

statutes at issue here do not contain the same kind of

language that UCC § 2-707 has, and on which the Second
No. 07-4083 9

Circuit relied in Tuttle. This was important to the Tuttle

court’s conclusion; it did not hold that all damages that

can be characterized as incidental or consequential may

automatically be added on as a debt collection fee. This

alone might not be enough to defeat AFNI’s position, if

we were to conclude that Wisconsin courts would not

draw a distinction between a fee that the initial creditor

charged its customers and a fee imposed by the debt

collector. But, on this record, such a conclusion would not

help AFNI.

That is because the record is insufficient to support a

finding that the 15% collection fee reflects AFNI’s actual

costs. AFNI relies exclusively on the following statement

by John Hess, its director of business development: “The

15% collection fee is substantially less than the average

collection costs on the collection accounts transferred to

AFNI by Cingular.” Hess did not explain how he reached

this conclusion, nor does the record contain any other data

that might support him. Indeed, the implication of Hess’s

statement is a bit odd. If AFNI is truly charging a collection

fee that is “substantially less” than its costs, then AFNI (a

company in the debt collection business, after all), is

pricing its services “substantially” below cost. As we have

already noted, we might guess that AFNI is also covering

its costs through the discount rate at which it purchases its

accounts, but we have no idea what that rate is. 

It is also worth noting that Equifax charged a set $20 fee

for each check, while AFNI charged a percentage fee that

necessarily varied with each account. For example, AFNI

charged Seeger $15.87, Gamroth $50.44, and McClain
10 No. 07-4083

$190.39. But the costs that AFNI describes in its brief, for

items such as computer equipment, personalizing form

letters, and sorting accounts, appear to be constant across

accounts. AFNI has not provided any evidence suggesting

that the 15% figure nonetheless works out to be an average

that compensates it for its efforts. Hess, in fact, disclaimed

any such position.

B

AFNI also argues that the contracts between Cingular

and the plaintiffs authorized Cingular to charge a collection fee, and thus, as Cingular’s assignee, it was also

authorized to charge such a fee. Although the plaintiffs

signed different versions of Cingular’s contract, the

relevant clauses all refer to a right to collect fees of third

parties, such as collection agency fees, court costs, and

attorneys’ fees. The clauses speak of Cingular’s incurring

those fees itself and then the consumer’s reimbursing

Cingular. 

The district court held that the contracts do not authorize

Cingular to charge its customers a fee when it handles the

collection process on its own; instead, they authorize a fee

only when Cingular farms out the process to a third party.

The district court concluded that Cingular itself could not

charge a collection fee that was neither the result of a

referral of an account, nor reimbursement of fees charged

to it by a collection agency, nor as part of an incurred cost.

The use of the word “referral” implies the existence of a

third party; Cingular was not “referring” accounts to itself.

Nor does it make sense to think that Cingular was charging
No. 07-4083 11

itself a collection fee, which plaintiffs then would have to

reimburse. Finally, the district court reasoned that the 15%

collection fee was not a cost that Cingular would “incur.”

As the court pointed out,

[t]he language of the contract does not simply state

that a customer agrees to “pay all costs including . . .

collection fees.” Rather, the contract states that the

customer agrees to “pay all costs including . . . collection fees . . . we incur in enforcing this Agreement.”As

with the provision referencing reimbursement, a

collection fee which is never paid is not a cost that

Cingular would incur. Such being the case, AFNI, as

with Cingular, could not charge a collection fee as part

of a cost it incurred, as AFNI did not pay a collection

fee to anyone.

AFNI’s only response to this analysis is to assert that

Cingular could have charged customers the 15% fee if it

had referred the debt to AFNI for collection and AFNI had

charged Cingular 15% for collection services. But this is not

how Cingular and AFNI handled their relationship.

Instead, Cingular chose to sell its delinquent accounts in

bulk for a price that was acceptable to AFNI. Without more

evidence in the record, we have no basis on which to

conclude that AFNI’s fee should be regarded as the

equivalent of the referral fee that Cingular warned its

customers they might have to bear. The simple addition of

the words “including collection fees” to the contract would

have cured the problem. 
12 No. 07-4083

C

Finally, AFNI argues that it is entitled to invoke the bona

fide error defense that the FDCPA recognizes. The statute

provides that a debt collector is not liable if its violation

was not intentional and instead resulted from a bona fide

error. See 15 U.S.C. § 1692k(c). The parties here agree that

AFNI did not intend to violate the FDCPA, but they

dispute whether the defense applies to mistakes of law,

whether AFNI’s error was bona fide, and whether AFNI

maintained reasonable procedures designed to prevent this

kind of error.

This court has not yet decided whether the bona fide error

defense applies to mistakes of law. Recently, we noted that

a split exists among the circuits on this question. See

Nielsen v. Dickerson, 307 F.3d 623, 640-41 (7th Cir. 2002). We

noted there that the majority of our sister circuits, including the Second, Eighth, and Ninth, have limited the defense

to factual and clerical errors, while a “growing minority”

have applied the defense to mistakes of law. Id. (quoting

Johnson v. Riddle, 305 F.3d 1107 (10th Cir. 2002)). Nielsen

notes that the majority view relies on an analogy to a

similar bona fide error provision in the Truth in Lending

Act. Yet, as Nielsen also observes, the Truth in Lending Act

specifically excludes mistakes of law, while the FDCPA has

no such exclusion. Nielsen, 307 F.3d at 640-41.

We have no need to take sides on the circuit split in this

case, because, even assuming that AFNI’s mistake was a

mistake of law, it cannot prevail for other reasons. Unless

a party maintains reasonable procedures to avert a viola-
No. 07-4083 13

tion, the defense does not apply. Here, AFNI argues that it

maintained such procedures to prevent collecting unauthorized fees because it has a compliance committee that

reviews legal summaries prepared by the American

Creditor Association (“ACA”) and the Debt Bar Association. AFNI also submits its form letters to the ACA. Hess

testified that he regularly reads excerpts of the relevant

Wisconsin statutes. The plaintiffs respond that AFNI’s

procedures are inadequate as a matter of law. The ACA

addresses only compliance with the FDCPA, not with

Wisconsin law or individual contracts. AFNI never consulted an attorney in Wisconsin on state law issues, nor

did it ask a Wisconsin governmental agency whether it

was entitled to charge a collection fee as the owner of the

debt. 

AFNI’s steps do not amount to reasonable procedures, as

the statute uses that term. To the contrary, applying the

bona fide error defense here would essentially reward a

business’s ignorance of the law. Hess’s deposition implies

that AFNI never knew that charging a fee as the owner of

a debt was different from charging a fee as a service

provider for another entity:

Q: So you—it’s your—was your understanding of

whether collection fees are permitted on this type of

accounts in the State of Wisconsin limited to the

absence of information on it in that ACA manual prior

to the lawsuit?

A: That document as well as any other published

bulletins that would have come to my attention.
14 No. 07-4083

Q: Do you remember specifically any of those?

A: There’s periodic notification of e-mails on a daily

basis from the Debt Buyers Association, from the credit

and collection industry associations, you know, late

breaking news. So there was never anything that came

to my attention otherwise. But the primary basis for

our understanding of Wisconsin and its associated

statutes would have been based on the ACA documentation.

In the end, AFNI is not arguing that it relied on an informed, but mistaken, legal opinion. It is saying that

its ignorance of the law should be excused because it

attempted to keep itself informed about the law through

the various trade association communications. This is

not enough, in our view, to support the bona fide error

defense.

AFNI also appeals the district court’s finding that AFNI

violated Wis. Stat. § 427.104(j), but AFNI’s argument is

limited to asserting that it did not know charging its 15%

fee violated the FDCPA. The district court found that AFNI

should have known it did not have the right to collect a

15% fee for the same reasons AFNI does not qualify for the

bona fide error defense. We agree with the district court. 

* * *

Our review of this case persuades us that the district

court was correct, on the record before it, to grant summary judgment in favor of the plaintiff class on its claims
No. 07-4083 15

based on the FDCPA and Wis. Stat. § 427.104(j). We

therefore AFFIRM the judgment of the district court. 

12-8-08