Court Opinion

ID: 767287
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:31:21+00
Date Added: 2024-06-11T17:55:27.265914
License: Public Domain

200 F.3d 1016 (7th Cir. 2000)
Patricia White, on her behalf and on behalf  of all others similarly situated, et al.,    Plaintiffs-Appellants,v.Jerome Goodman, et al.,    Defendants-Appellees.
Nos. 98-4180, 98-4328 and 98-4329
In the  United States Court of Appeals  For the Seventh Circuit
Argued September 23, 1999Decided January 11, 2000

Appeals from the United States District Court for the  Northern District of Illinois, Eastern Division.  Nos. 97 C 7078, 98 C 5911 & 98 C 5435--James B. Moran, Judge. [Copyrighted Material Omitted]
Before Posner, Chief Judge, and Manion and Rovner,  Circuit Judges.
Posner, Chief Judge.

1
One of the practices that  the Fair Debt Collection Practices Act, 15 U.S.C.  sec.sec. 1692 et seq., forbids is "flat-rating,"  the term popularly applied to providing a form  which creates the false impression that someone  (usually a collection agency) besides the actual  creditor is "participating" in collecting the  debt. sec. 1692j(a); see S. Rep. No. 382, 95th  Cong., 1st Sess. 5 (1977). (The provider of the  form presumably charges a "flat rate" for the  form; hence the popular name for the practice.)  The element of deception lies less in the  misrepresentation that a third-party debt  collector is involved than in the signal,  conveyed by turning over a debt for collection,  that the creditor does not intend to drop the  matter. Congress's concern was that such  deception might induce debtors to abandon  legitimate defenses. Whether the concern was well  founded is not for us to say.

2
The flat-rater is thus not the creditor, but the  counterpart of a contributory infringer in the  law of intellectual property; he furnishes a  deceptive instrumentality to the primary  violator. Another provision of the Act, 15 U.S.C.  sec. 1692a(6), brings the latter within the scope  of liability by forbidding a creditor, in the  collection of his debts, to use a name which  suggests the involvement of a third party, unless  the third party is participating in the debt  collection, for then there is no deception.  Conceivably this provision could be read so  narrowly as to reach only the case in which the  creditor is using a pseudonym; but this reading,  as the cases interpreting section 1692a(6) make  clear, Maguire v. Citicorp Retail Services, Inc.,  147 F.3d 232, 235 (2d Cir. 1998); Taylor v.  Perrin, Landry, deLaunay & Durand, 103 F.3d 1232  (5th Cir. 1997), is too narrow. A separate  provision forbids the use of a pseudonym by a  debt collector, 15 U.S.C. sec. 1692e(14), and  while a debt collector is not a creditor the  section we have just cited indicates that the  statute distinguishes between the use of  pseudonyms, on the one hand, and a false  representation that a third party (which may  exist) is participating in debt collection, on  the other.

3
For many years North Shore Agency, Inc., a debt-  collection service, has had an arrangement with  Book-of-the-Month Club that works as follows.  (The arrangement has never been reduced to  writing, but there is no material dispute over  how it works.) When unsuccessful in obtaining  payment from one of its customers, Book-of-the-  Month Club sends the name and address of the  customer to North Shore, which writes the  customer demanding payment of the sum that Book-  of-the-Month Club has informed North Shore is  due, and stating that further collection efforts  may ensue if the demand is ignored. "Be prepared  for further collection activity," as the letter  to one of the named plaintiffs put it. Before  mailing the letter, North Shore runs a computer  check on the customer's name in order to  eliminate debtors whom it would be futile to dun.  For example, if the computer check reveals that  the debtor is in bankruptcy, North Shore will not  bother to send him a letter, because a debt to a  book club is ordinarily too small to warrant  filing a claim in bankruptcy.

4
The contents of the dunning letter are a  collaborative product of North Shore and Book-of-the-Month Club, and the letter directs the  customer to pay the latter directly. The letter  lists a phone number for North Shore but it is a  number for messages only, and the messages are  forwarded to Book-of-the-Month Club rather than  being handled by North Shore. If the letter fails  to elicit payment, Book-of-the-Month Club will so  notify North Shore, which may send another  letter; and, if it does, this sequence may be  repeated a number of times, until North Shore is  convinced that the debtor is not going to pay in  response merely to a demand. Book-of-the-Month  Club pays North Shore a flat fee for each letter  that North Shore mails.

5
If the letters fail to elicit payment of the  debt, Book-of-the-Month Club retransmits the  customer's name and address to North Shore and it  is then up to North Shore to decide what  additional efforts, if any, to make to collect  the debt. Because the debts usually are very  small, North Shore probably does nothing further  in most cases, although the record is barren of  data. If it does make further efforts and  succeeds in obtaining money from the debtor, it  keeps 35 percent of the "take" as its  compensation and remits the balance to Book-of-  the-Month Club.

6
Patricia White received such a letter, demanding  the princely sum of $18.45, and responded not by  paying or by questioning the validity of the  debt, but by declaring bankruptcy and later by  bringing a class action suit against North Shore,  Book-of-the-Month Club, the company that stuffs  and mails the envelopes that North Shore sends  Book-of-the-Month Club's debtors, and a  shareholder of North Shore (Mr. Goodman, the  first defendant named in the complaint). A  similar though more limited action was brought on  behalf of two other debtors but against North  Shore only. The two cases were consolidated and  both were dismissed on motion for summary  judgment.

7
So far as the joinder of defendants other than  North Shore and Book-of-the-Month Club is  concerned, the suits are frivolous and the  plaintiffs, represented by an experienced  practitioner in consumer finance litigation,  should have been sanctioned for what amounts to  malicious prosecution. The 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, which was not attempted here,  Aubert v. American General Finance, Inc., 137  F.3d 976, 979-80 (7th Cir. 1998), or at companies  that perform ministerial duties for debt  collectors, such as stuffing and printing the  debt collector's letters. Laubach v. Arrow  Service Bureau, Inc., 987 F. Supp. 625, 629-31  (N.D. Ill. 1997); Trull v. Lason Systems, Inc.,  982 F. Supp. 600, 607-08 (N.D. Ill. 1997); S.  Rep. No. 382, supra, at 5. The joinder of these  defendants illustrates the all-too-common abuse  of the class action as a device for forcing the  settlement of meritless claims and is thus a  mirror image of the abusive tactics of debt  collectors at which the statute is aimed.

8
The contention that North Shore is a flat-rater  is not frivolous, and if it were a flat-rater,  Book-of-the-Month Club might be liable under  section 1692a(6). But it is unconvincing. North  Shore did compose, either by itself or jointly  with Book-of-the-Month Club, the dunning letter  that Patricia White received; and if this were  all North Shore had done to help the Club collect  the money she owed it, North Shore would indeed  be a flat-rater. But it is not all that North  Shore did. Because the debts that it collects on  behalf of Book-of-the-Month Club are small, North  Shore's collection efforts are, we may assume,  usually limited to sending a series of dunning  letters. If the debtors are smart, they probably  know that if they tough it out, eventually the  letters will cease coming and that will be the  last they hear of the matter until they discover  they have earned a lousy credit rating. They are,  nevertheless, in the clutches of a bona fide  collection agency which, if the letters fail to  collect the debt, may sue. Probably North Shore  does sue from time to time on behalf of Book-of-  the-Month Club just so that the club does not get  a reputation as being a particularly easy mark  for people who like to get their books free. The  plaintiffs seem to think that unless the creditor  assigns the debt at the start to a collection  agency, the agency is a flat-rater. But there is  nothing in the statute to equate participation in  collection with ownership of the debt.

9
It is ironic that the named plaintiffs in a  class action directed against a debt collector  should be accusing the debt collector of being  insufficiently aggressive in its efforts to  collect debts owed by the members of the class;  but in any event the claim was correctly  dismissed. We reject the two decisions on which  the plaintiffs rely (neither an appellate  decision) that could be thought inconsistent with  our conclusion. They are Randle v. GC Services,  L.P., 25 F. Supp. 2d 849, 854 (N.D. Ill. 1998),  and In re Slough, 70 F.T.C. 1318, 1966 FTC Lexis  33, *78-80 (1966), affirmed on other grounds  under the name of Slough v. FTC, 396 F.2d 870  (5th Cir. 1968).

10
The plaintiffs have another claim, this one  under the general provisions of the Fair Debt  Collection Practices Act forbidding deceptive  debt collection practices. 15 U.S.C. sec.sec.  1692e, 1692e(10). On the reverse of the dunning  letters that North Shore sends appears a  paragraph which begins: "The State of Colorado  requires that we furnish Colorado residents with  the following information. . . ." A list of the  rights that Colorado residents have to limit  further communications from a debt collector  follows. The paragraph is not claimed to be  inaccurate. The argument is, rather, that it  implies that nonresidents of Colorado do not have  similar rights, whereas in fact the Fair Debt  Collection Practices Act itself confers similar  rights on debtors. 15 U.S.C. sec. 1692c(c). In  other words, the reader of the paragraph is  assumed to react by saying to himself, "Since I'm  not a resident of Colorado, I guess I have no  right to limit further communications from this  pesky debt collector." This is fantastic  conjecture. Since the Fair Debt Collection  Practices Act does not require that a copy or  summary of it be furnished with every (or any)  dunning letter, it is unlikely, to say the least,  that recipients of such letters, unless they  happen to be class action lawyers specializing in  consumer finance litigation, have any idea of  what specific federal or state rights they might  have; so they have no benchmark against which to  compare the rights that Colorado law confers. And  far from implying that Coloradans have superior  rights, the paragraph by its opening sentence  makes clear that Colorado merely requires that  the debt collector furnish Colorado residents  with the specified information. The implication  is not that such residents have more rights than  residents of other states, but, at most, that  they are less sophisticated and therefore need  more information about their rights.  Realistically, the only reaction of a Colorado  nonresident to the paragraph would be that it had  nothing to do with him.

11
Any document can be misread. The Act is not  violated by a dunning letter that is susceptible  of an ingenious misreading, for then every  dunning letter would violate it. The Act protects  the unsophisticated debtor, but not the  irrational one. Gammon v. GC Services Limited  Partnership, 27 F.3d 1254, 1257 (7th Cir. 1994);  Clomon v. Jackson, 988 F.2d 1314, 1319-20 (2d  Cir. 1993).

12
Affirmed.