Court Opinion

ID: 768976
Source: CourtListenerOpinion
Date Created: 2012-04-18 09:18:28+00
Date Added: 2024-06-11T17:55:39.750956
License: Public Domain

214 F.3d 872 (7th Cir. 2000)
Kevin Miller,    Plaintiff-Appellant,v.McCalla, Raymer, Padrick, Cobb, Nichols,  and Clark, L.L.C., and Echevarria, McCalla,  Raymer, Barrett, and Frappier,    Defendants-Appellees.
No. 99-3263
In the  United States Court of Appeals  For the Seventh Circuit
Argued March 31, 2000Decided June 5, 2000Rehearing and Rehearing En Banc Denied July 26, 2000.*

Appeal from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 98 C 5563--Elaine E. Bucklo, Judge. [Copyrighted Material Omitted]
Before Posner, Chief Judge, and Ripple and Rovner,  Circuit Judges.   Posner, Chief Judge.

1
This is a suit under the  Fair Debt Collection Practices Act, 15 U.S.C.  sec.sec. 1692 et seq., against two related law  firms engaged in debt collection. The plaintiff  (the debtor) claims that the defendants violated  the Act by failing to state "the amount of the  debt" in the dunning letter of which he  complains. See sec. 1692g(a)(1). They reply that  they did state the amount and that anyway the  letter is outside the scope of the Act because  they were trying to collect a business debt  rather than a consumer debt, and the Act is  limited to the collection of consumer debts. sec.  1692a(5); First Gibraltar Bank, FSB v. Smith, 62  F.3d 133 (5th Cir. 1995). The district court  granted summary judgment for the defendants on  the latter ground, and let us start there.

2
The plaintiff bought a house in Atlanta in 1992,  and took out a mortgage. He lived in the house  until 1995, when he accepted a job in Chicago;  from then on, he rented the house. He received  the dunning letter from one of the defendant law  firms on behalf of the mortgagee in 1997. By this  time, renting the property to strangers, the  plaintiff was making a business use of the  property and so the mortgage loan was financing a  business rather than a consumer debt. But the  plaintiff argues that the relevant time for  determining the nature of the debt is when the  debt first arises, not when collection efforts  begin. The defendants riposte that since the Act  under which the plaintiff is suing, unlike the  Truth in Lending Act, governs debt collection,  the relevant time is when the attempt at  collection is made. Oddly, there are no reported  appellate decisions on the issue, though it was  assumed in Bloom v. I.C. System, Inc., 972 F.2d  1067, 1068-69 (9th Cir. 1992), that the relevant  time is when the loan is made, not when  collection is attempted.

3
The language of the statute favors this  interpretation. "Debt" is defined as "any  obligation or alleged obligation of a consumer to  pay money arising out of a transaction in which  the money, property, insurance, or services which  are the subject of the transaction are primarily  for personal, family, or household purposes."  sec. 1692a(5). The defendants don't deny that the  plaintiff is a "consumer," even though he is in  the "business" of renting his house (they can't  deny this, because "the term 'consumer' means any  natural person obligated or allegedly obligated  to pay any debt," sec. 1692a(3)), and the  antecedent of the first "which" in the clause "in  which the money, property, insurance, or services  which are the subject of the transaction are  primarily for personal, family, or household  purposes" is, as a matter of grammar anyway, the  transaction out of which the obligation to repay  arose, not the obligation itself; and that  transaction was the purchase of a house for a  personal use, namely living in it. Grammar  needn't trump sense; the purpose of statutory  interpretation is to make sense out of statutes  not written by grammarians. But we cannot say  that it is senseless to base the debt collector's  obligation on the character of the debt when it  arose rather than when it is to be collected. The  original creditor is more likely to know whether  the debt was personal or commercial at its  incipience than either the creditor or the debt  collector is to know what current use the debtor  is making of the loan (in this case, the  plaintiff is using the loan, in effect, to  generate income from the house that secures the  loan).

4
Against this the defendants argue that the  plaintiff's interpretation creates a loophole.  Suppose the plaintiff had bought the house to use  as an office, and later converted it to personal  use; on the plaintiff's interpretation of the Act  the debt collector would not have to give him the  statutory warnings. But this makes perfect sense.  The Act regulates the debt collection tactics  employed against personal borrowers on the theory  that they are likely to be unsophisticated about  debt collection and thus prey to unscrupulous  collection methods. See S. Rep. No. 382, 95th  Cong., 1st Sess. 2 (1977); Keele v. Wexler, 149  F.3d 589, 594 (7th Cir. 1998); McCartney v. First  City Bank, 970 F.2d 45, 47 (5th Cir. 1992).  Businessmen don't need the warnings. A  businessman who converts a business purchase to  personal use does not by virtue of that  conversion lose his commercial sophistication and  so acquire a need for statutory protection. And  we agree with the plaintiff's concession that if  a borrower for a personal use were to assign the  loan that financed that use to a business, the  debt would then arise out of the assignment,  rather than out of the original loan, and so the  Act would be inapplicable--rightly so since the  recipient of the dunning letter would be a  businessman, not a consumer.

5
So the Act is applicable and we move to the  question whether the defendants violated the  statutory duty to state the amount of the loan.  15 U.S.C. sec. 1692g(a)(1). The dunning letter  said that the "unpaid principal balance" of the  loan (emphasis added) was $178,844.65, but added  that "this amount does not include accrued but  unpaid interest, unpaid late charges, escrow  advances or other charges for preservation and  protection of the lender's interest in the  property, as authorized by your loan agreement.  The amount to reinstate or pay off your loan  changes daily. You may call our office for  complete reinstatement and payoff figures." An  800 number is given.

6
The statement does not comply with the Act  (again we can find no case on the question). The  unpaid principal balance is not the debt; it is  only a part of the debt; the Act requires  statement of the debt. The requirement is not  satisfied by listing a phone number. It is  notorious that trying to get through to an 800  number is often a vexing and protracted  undertaking, and anyway, unless the number is  recorded, to authorize debt collectors to comply  orally would be an invitation to just the sort of  fraudulent and coercive tactics in debt  collection that the Act aimed (rightly or  wrongly) to put an end to. It is no excuse that  it was "impossible" for the defendants to comply  when as in this case the amount of the debt  changes daily. What would or might be impossible  for the defendants to do would be to determine  what the amount of the debt might be at some  future date if for example the interest rate in  the loan agreement was variable. What they  certainly could do was to state the total amount  due--interest and other charges as well as  principal--on the date the dunning letter was  sent. We think the statute required this.     In a previous case, in an effort to minimize  litigation under the debt collection statute, we  fashioned a "safe harbor" formula for complying  with another provision of the statute. Bartlett  v. Heibl, 128 F.3d 497, 501-02 (7th Cir. 1997);  see also Herzberger v. Standard Ins. Co., 205  F.3d 327, 331 (7th Cir. 2000). We think it useful  to do the same thing for the "amount of debt"  provision. We hold that the following statement  satisfies the debt collector's duty to state the  amount of the debt in cases like this where the  amount varies from day to day: "As of the date of  this letter, you owe $___ [the exact amount due].  Because of interest, late charges, and other  charges that may vary from day to day, the amount  due on the day you pay may be greater. Hence, if  you pay the amount shown above, an adjustment may  be necessary after we receive your check, in  which event we will inform you before depositing  the check for collection. For further  information, write the undersigned or call 1-800-  [phone number]." A debt collector who uses this  form will not violate the "amount of the debt"  provision, provided, of course, that the  information he furnishes is accurate and he does  not obscure it by adding confusing other  information (or misinformation). E.g., Marshall-  Mosby v. Corporate Receivables, Inc., 205 F.3d  323, 326 (7th Cir. 2000); Bartlett v. Heibl,  supra, 128 F.3d at 500. Of course we do not hold  that a debt collector must use this form of words  to avoid violating the statute; but if he does,  and (to repeat an essential qualification) does  not add other words that confuse the message, he  will as a matter of law have discharged his duty  to state clearly the amount due. No reasonable  person could conclude that the statement that we  have drafted does not inform the debtor of the  amount due. Cf. Walker v. National Recovery,  Inc., 200 F.3d 500, 503 (7th Cir. 1999).

7
It remains to consider the independent argument  of one of the two defendant law firms that it is  not a "debt collector" within the meaning of the  statute. See sec. 1692a(6). The firm that sent  the dunning letter to the plaintiff is McCalla,  Raymer, Padrick, Cobb, Nichols & Clark, L.L.C.,  and the other firm is Echevarria, McCalla,  Raymer, Barrett & Frappier. The first firm, the  McCalla firm we'll call it, is a partner in the  Echevarria firm. (The purpose of this unusual  arrangement, presumably, is to preserve the  McCalla firm's limited liability, but the parties  do not discuss the purpose and it is not  material.) The Echevarria firm argues that it  should not be liable for its partner's statutory  violation, analogizing its relation to its  partner as one of affiliated corporations and  pointing to the rule that, save in exceptional  circumstances not demonstrated here, one  affiliated corporation is not liable for the  debts of the other, e.g., Papa v. Katy  Industries, Inc., 166 F.3d 937 (7th Cir. 1999)--a  principle applicable to suits under the Fair Debt  Collection Practices Act. Pettit v. Retrieval  Masters Creditors Bureau, Inc., 211 F.3d 1057, 1058-60 (7th Cir. 2000); White v.  Goodman, 200 F.3d 1016, 1019 (7th Cir. 2000);  Aubert v. American General Finance, Inc., 137  F.3d 976, 979-80 (7th Cir. 1998). The flaw is  that partners, unlike corporations, do not enjoy  limited liability. The liability of a partnership  is imputed to the partners, and so the plaintiff  was entitled to sue the partners as well as the  partnership. Bartlett v. Heibl, supra, 128 F.3d  at 499-500; Fla. Stat. sec. 620.8305(1) (the  Echevarria firm is a Florida partnership).

8
The judgment in favor of the defendants is  reversed and the case is remanded to the district  court for further proceedings consistent with  this opinion.

9
Reversed and Remanded.

Note:

*
 Hon. Joel M. Flaum did not participate in the consideration of the petitions.