Ross v. Rjm Acquisitions Funding LLC

• Citation: 480 F.3d 493
• Decision Date: 13 March 2007
• Docket Number: No. 06-2059.,06-2059.
• Parties: Delisa ROSS, Plaintiff-Appellant, v. RJM ACQUISITIONS FUNDING LLC, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

480 F.3d 493

Delisa ROSS, Plaintiff-Appellant, v. RJM ACQUISITIONS FUNDING LLC, Defendant-Appellee.

No. 06-2059.

United States Court of Appeals, Seventh Circuit.

Argued January 4, 2007.

Decided March 13, 2007.

David J. Philipps (argued), Gomolinski & Philipps, Palos Hills, IL, for Plaintiff-Appellant.

Joseph S. Messer (argued), Amy R. Jonker, Messer & Stilp, Chicago, IL, for Defendant-Appellee.

Before POSNER, RIPPLE, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

When a debtor's debts are discharged in bankruptcy, efforts to collect them are unlawful. A debtor dunned after bankruptcy, if he knows his rights, can simply ignore any dunning letter he receives in respect of one of the discharged debts. But there is a danger that debt collectors would continue sending these letters, thinking that the recipient mightn't realize that his debts had been discharged or that the debt he was being dunned for, perhaps long after the bankruptcy, was among the debts that had been discharged. Or he might think the debt was a debt that cannot be discharged in bankruptcy.

Dunning people for their discharged debts would undermine the "fresh start" rationale of bankruptcy (bankruptcy as a system of debtors' rights as well as creditors' remedies), and is prohibited by the Fair Debt Collection Practices Act, which so far as relates to this case prohibits a debt collector (a defined term) from making a "false representation of the character, amount, or legal status of any debt." 15 U.S.C. § 1692e(2)(A). Although not aimed specifically at efforts to collect debts that have been discharged in bankruptcy, this provision fits that practice to a T. Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991, 994-95 (7th Cir.2003); cf. Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir.2004) ("a demand for immediate payment while a debtor is in bankruptcy (or after the debt's discharge) is `false' in the sense that it asserts that money is due, although, because of the automatic stay (11 U.S.C. § 362) or the discharge injunction (11 U.S.C. § 524), it is not"). However, although the representation need not be deliberate, reckless, or even negligent to trigger liability—it need only be false—the Act provides a complete defense to a debt collector who "shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. § 1692k(c).

This safety hatch is important because the Act authorizes damages in excess of the actual cost incurred by the victim of a violation: The victim is entitled to "any actual damage sustained by [him] as a result of" the violation, plus, "in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector." 15 U.S.C. §§ 1692k(a)(1), 2(A), (B). When damages are capped at the harm to the victim, a potential injurer will not take precautions to avert that harm that cost more than the cost the harm causes the victim. Brotherhood Shipping Co. v. St. Paul Fire & Marine Ins. Co., 985 F.2d 323, 327 (7th Cir.1993); Eimann v. Soldier of Fortune Magazine, Inc., 880 F.2d 830, 835 (5th Cir.1989); Rhode Island Hospital Trust National Bank v. Zapata Corp., 848 F.2d 291, 295 (1st Cir.1988). So if required by a court to pay more, he will spend more, if necessary to avert the harm, than the cost the harm causes the victim; and that is too much from an overall social standpoint. Movitz v. First National Bank, 148 F.3d 760, 763 (7th Cir.1998); BMW of North America, Inc. v. Gore, 517 U.S. 559, 593, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996) (concurring opinion); compare Kemezy v. Peters, 79 F.3d 33, 34 (7th Cir.1996). Hence the section 1692k(a) defense, which forgives mistakes, even though they inflict harm, when the cost of avoiding a mistake would be disproportionate to the harm.

We must decide whether the procedures that the defendant debt collector, RJM, adopted in order to try to avoid—unsuccessfully in the case of the plaintiff, Ross—dunning a debtor for a discharged debt were reasonable within the meaning of section 1692k(a).

In 2002 RJM purchased a number of charged-off accounts from Federated Department Stores; among them was a $574.72 debt that Ross owed Federated. The parties to the sale of the debts—Federated and RJM—agreed in the sale agreement that "they have not and will not intentionally attempt to collect[,] or collect[,] debt that has been discharged in bankruptcy." But Federated did not guarantee that the package of debts it was selling to RJM contained no discharged debts.

RJM retained its affiliate Plaza Associates to collect Ross's debt. In May 2003 Plaza Associates sent a dunning letter to "Lisa Ross." That was the name under which she had incurred the debt to Federated, but she normally goes by the name "Delisa Ross." Delisa Ross declared bankruptcy the following month, listing the Federated debt under the name Delisa Ross rather than Lisa Ross and stating that Plaza Associates and RMA—not RJM—were trying to collect the debt. There is a debt collector named RMA, but it is unrelated to RJM and had nothing to do with Ross's debt.

Plaza Associates, having been named in the listing of the debt in the bankruptcy proceeding, was notified of the bankruptcy and realized (we are not told how) that the debtor Lisa Ross was the bankruptcy debtor Delisa Ross. Not waiting for the debt to be discharged, Plaza Associates abandoned collection efforts and returned the Lisa Ross file to RJM. But it failed to inform RJM what Lisa Ross's true name was and that she had declared bankruptcy.

She received a discharge of the debt on October 17, thus placing the debt beyond the reach of RJM. Plaza Associates received notice of the discharge but did not forward it to RJM. Many months later, RJM, not realizing that Lisa Ross was Delisa Ross, twice mailed dunning letters to Lisa Ross at Delisa Ross's address, for Ross had given her correct address, though an incorrect name, to Federated. Ross did not respond to either letter by paying RJM anything, but instead referred the letters to her lawyer. He informed RJM that Lisa Ross was the same person as Delisa Ross. RJM made no further effort to collect the debt. Nevertheless, Ross—whose lawyer's motto is "We sue abusive debt collectors," www.myfairdebt com/b/62/david-philipps/, visited Jan. 19, 2007—sued RJM. The district court granted summary judgment in favor of RJM on the basis of the section 1692k(c) defense, and Ross appeals.

RJM was mindful of its legal duty not to dun a discharged bankrupt, and to that end conducted a computerized search of bankruptcies, which failed however to reveal Delisa Ross's bankruptcy because the search was for Lisa Ross, the name on the account that had been sold to RJM for collection.

RJM had several procedures in place to minimize errors such as occurred in this case: an understanding with the firms that sell it debts for collection that they would not knowingly sell RJM a discharged debt and that they would notify RJM if after forwarding a debt they discovered that it had been discharged or had otherwise become uncollectable; RJM's bankruptcy search (actually done for it by another firm); Plaza's promise to notify RJM if it received a notice of discharge; and RJM's prompt cessation of any attempt to collect a debt upon notification that it had been discharged. These procedures are reasonable-indeed Hyman v. Tate, 362 F.3d 965, 968-69 (7th Cir.2004), holds that the first and fourth are enough to discharge the duty of reasonableness, remarking that only .01 percent (1 in 10,000) of all the debts referred for collection by the debt collector in that case were later discovered to have been discharged in bankruptcy. Id. at 968; see also Kort v. Diversified Collection Services, Inc., 394 F.3d 530, 539 (7th Cir.2005); Jenkins v. Heintz, 124 F.3d 824, 834-35 (7th Cir.1997); Lewis v. ACB Business Services, Inc., 135 F.3d 389,...