Opinion ID: 2976323
Heading Depth: 3
Heading Rank: 2

Heading: Margelefsky’s individual liability

Text: We will first address Margelefsky’s argument that he should not be held individually liable because either (1) he did not have any involvement with the collection notice that was sent to Kistner, or (2) he is not individually liable for the actions of his law firm, which is established as a limited liability company (LLC). Margelefsky argues that, notwithstanding any liability that his debt-collection business might face, he is entitled to be dismissed from the case as an individually named defendant. The question of whether an individual member of an LLC that is engaged in debt collection may be held liable under the FDCPA without piercing the corporate veil is an issue of first impression in this circuit. Liability under the FDCPA attaches only to a “debt collector,” a term defined by the Act as any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 15 U.S.C. § 1692a(6). Ohio law precludes personal liability for members of an LLC on the basis of the LLC’s liability. Ohio Rev. Code Ann. § 1705.48. Margelefsky cites only one case in support of his argument that his lack of involvement with the specific notice at issue precludes his individual liability under the FDCPA. In that case, United States v. ACB Sales & Service, Inc., 590 F. Supp 561 (D. Ariz. 1984), the district court concluded that the director of a corporate entity “may be held liable only for [FDCPA] violations in which he materially participates.” Id. at 575. In more recent years, however, the law surrounding this issue has been developed more fully and a split of authority has emerged. No. 07-3134 Kistner v. The Law Offices of Michael P. Margelefsky et al. Page 4 On one side of the split, the Seventh Circuit and a few district courts have ruled that a shareholder, officer, or employee of a corporate debt collector may not be held personally liable without meeting the requirements necessary to pierce the corporate veil. The leading case for this proposition is White v. Goodman, 200 F.3d 1016 (7th Cir. 2000), where the Seventh Circuit concluded that “[t]he Fair Debt Collection Practices Act is not aimed at the shareholders of debt collectors operating in the corporate form unless some basis is shown for piercing the corporate veil.” Id. at 1019. Later, in Pettit v. Retrieval Masters Creditors Bureau, Inc., 211 F.3d 1057 (7th Cir. 2000), the Seventh Circuit clarified that “under our holding in White v. Goodman, the extent of control exercised by an officer or shareholder is irrelevant to determining his liability under the FDCPA.” Id. at 1059. According to the court in Pettit, officers and shareholders “do not become ‘debt collectors’ simply by working for or owning stock in debt collection companies.” Id. The Seventh Circuit explained that “the FDCPA has utilized the principle of vicarious liability” and, “[j]ust as in the Title VII context, the debt collection company answers for its employees’ violations of the statute.” Id. On the other side of the split are a series of district court decisions concluding that “where a shareholder, officer, or employee of a corporation is personally involved in the debt collection at issue, he may be held personally liable as a debt collector without piercing the corporate veil.” Brumbelow v. Law Offices of Bennett and Deloney, P.C., 372 F. Supp. 2d 615, 618 (D. Utah 2005). For example, the Eastern District of California has concluded that [b]y being directly involved in the day-to-day operation of Lundgren & Associates, including training and managing employees, and reviewing or supervising the review of all accounts, Lundgren was both directly and indirectly involved in Lundgren & Associates’ collection of debts. Given the plain language of the FDCPA, defendant Lundgren is a debt collector within the meaning of the FDCPA and can be held liable for any acts in which he directly or indirectly attempted to collect debts in violation of the FDCPA. Newman v. Checkrite Cal., Inc., 912 F. Supp. 1354, 1372 (E.D. Cal. 1995) (referring to 15 U.S.C. § 1692a(6)). In another case, the Eastern District of New York found personal liability in part because “each employee is himself a ‘debt collector’ within the statutory definition, namely each is a ‘person’ in a business, ‘the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect . . . debts owed or due . . . another.’” Teng v. Metro. Retail Recovery Inc., 851 F. Supp. 61, 67 (E.D.N.Y. 1994) (quoting 15 U.S.C. § 1692a(6)). The district court in Arizona, subsequent to the ACB Sales & Service, Inc. case from that district relied on by Margelefsky, has held that personal liability may be found where individual corporate officers “materially participated in the activities of [a debt collection agency] alleged to be collection activities.” Brink v. First Credit Res., 57 F. Supp. 2d 848, 862 (D. Ariz. 1999). In other words, contrary to Margelefsky’s argument that he cannot be personally liable because he did not participate in sending the specific letter to Kistner, he may be personally liable on the basis of his participation in the debt collection activities of the LLC more generally. Most similar to the instant action is the case of Ditty v. CheckRite, Ltd., 973 F. Supp. 1320 (D. Utah 1997), in which the district court premised a finding of personal liability on the part of the sole member of a law firm LLC on the grounds that as the firm’s sole attorney, developer of the “covenant not to sue” practice, author of the generic letters utilized by the firm, and supervisor of all of the firm’s collection activities, Mr. DeLoney was regularly engaged, directly and indirectly, in the collection of debts. No. 07-3134 Kistner v. The Law Offices of Michael P. Margelefsky et al. Page 5 Id. at 1336-37. The court in Ditty concluded that the defendant satisfied the FDCPA definition of “debt collector” and could therefore be held liable without “pierc[ing] the protective veil afforded [LLCs] under Utah law.” Id. at 1337. In discussing the Ditty holding, the court in Brumbelow explained that “[t]here is no doubt that in a generic sense a person who authors collection letters, supervises collection activities, and is the sole attorney in a debt collection firm is a ‘debt collector’ as defined by the FDCPA.” Brumbelow, 372 F. Supp. 2d at 618. The court in Brumbelow also articulated a compelling argument against the Seventh Circuit’s conclusion that the FDCPA employs the same vicarious-liability principles found in Title VII: Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act both forbid discrimination by “an employer,” “employment agency,” or “labor organization.” The Tenth Circuit has squarely held that “[t]he relief granted under Title VII is against the employer, not individual employees whose actions would constitute a violation of the Act.” In other words, where the employer under Title VII is a corporation, it is the corporate entity which is liable for reinstatement, or backpay, or any other relief awarded, and not the individual decision-maker who actually engaged in the discriminatory conduct. By contrast, the FDCPA does not limit liability to business entities or employers. Rather, under the FDCPA, liability extends to all “debt collectors,” defined as “ any person . . . in any business the principal purpose of which is the collection of any debts . . . .” The point of this is simply that it is much easier to read the language of Title VII and conclude that it is based upon the respondeat superior liability of the employer, especially given the remedies available under Title VII, than it is to conclude the same thing with the FDCPA. 372 F. Supp. 2d at 621-22 (citations omitted). We find the analysis in Brumbelow persuasive. Accordingly, we adopt that analysis and hold that subjecting the sole member of an LLC to individual liability for violations of the FDCPA will require proof that the individual is a “debt collector,” but does not require piercing of the corporate veil. In the instant action, Margelefsky’s alleged liability is not premised solely on the fact that he works for, and is the sole member of, the Law Offices. Rather, Margelefsky, like the defendants in Ditty, was “regularly engaged, directly and indirectly, in the collection of debts.” See Ditty, 973 F. Supp. at 1337. Margelefsky admitted in his deposition that he drafted the form letter that was sent to Kistner, is one of only two attorneys at the law firm, is the only member of the LLC, and is the one who negotiates terms with the mailing service provider used in the debt-collection practice. He also states in his brief that he is involved in the debt collection practice “to oversee compliance with applicable collection laws and when the intervention by a lawyer becomes necessary.” And while Margelefsky’s signature does not appear on the collection notice that was sent to Kistner, the remittance voucher directed Kistner to make her check or money order payable to Margelefsky individually. The district court did not analyze Margelefsky’s status as a “debt collector,” but the facts relating to his involvement in the debt-collection business are undisputed—originating in Margelefsky’s own deposition testimony. Accordingly, because the determination of whether Margelefsky is a “debt collector” under the statutory definition is reduced to a pure question of law, it is unnecessary to remand the issue to the district court. See United Food & Commercial Workers Union, Local 1099 v. SW Ohio Reg’l Transit Auth., 163 F.3d 341, 361 n.9 (6th Cir. 1998) (“Although we will generally decline to consider in the first instance issues not considered by the No. 07-3134 Kistner v. The Law Offices of Michael P. Margelefsky et al. Page 6 district court, we will make an exception ‘where . . . the issue presents only a question of law.’” (quoting City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 255 (6th Cir. 1994))). Based on the foregoing, we conclude that Margelefsky is a “debt collector” as a matter of law and thus subject to individual liability. See Ditty, 973 F. Supp. at 1336-37.