548 F.3d 496 (7th Cir. 2008), 07-1075, McKinney v. Cadleway Properties, Inc.

Docket Nº:07-1075.
Citation:548 F.3d 496
Party Name:Versia S. McKINNEY, Plaintiff-Appellee, v. CADLEWAY PROPERTIES, INCORPORATED, Defendant-Appellant.
Case Date:November 13, 2008
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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548 F.3d 496 (7th Cir. 2008)

Versia S. McKINNEY, Plaintiff-Appellee,



No. 07-1075.

United States Court of Appeals, Seventh Circuit.

November 13, 2008

Argued Oct. 30, 2007.

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O. Randolph Bragg (argued), Horwitz Horwitz & Associates, Chicago, IL, for Plaintiff-Appellee.

James K. Borcia (argued), Tressler, Soderstrom, Maloney & Priess, Chicago, IL, F. Dean Armstrong, Armstrong Law Firm, Flossmoor, IL, for Defendant-Appellant.

Before MANION, ROVNER, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

This case requires us to determine whether the defendant, Cadleway Properties, Inc., is a “ debt collector" under the Fair Debt Collection Practices Act, 15 U.S.C. § § 1692 et seq. (“ FDCPA" ). If it is, then the FDCPA applies, and our second question is whether the “ validation of debt" notice Cadleway sent to the plaintiff was clear or confusing on its face.

Reverend Versia McKinney's Chicago home was damaged by a flood in 1996. To help with repair costs, she obtained a disaster assistance loan from the Small Business Administration (“ SBA" ). After McKinney ceased making payments in 2002, the SBA sold the debt to a third party, and Cadleway subsequently acquired it. In an attempt to collect on the debt, Cadleway sent McKinney a collection letter that included a notice of her right to dispute and obtain verification of the debt and of the original creditor as required by the FDCPA. McKinney responded with this lawsuit alleging the notice was confusing.

The district court entered summary judgment for McKinney, concluding that Cadleway is a debt collector and its collection letter was confusing to the unsophisticated consumer and therefore violated the FDCPA. We agree with the former conclusion but not the latter. The FDCPA covers debt collectors, not creditors, and these categories are “ mutually exclusive." Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir.2003); see also 15 U.S.C. § 1692a(4), (6) & (6)(F). The undisputed evidence here establishes that Cadleway is a debt collector, not a creditor. Cadleway's validation-of-debt notice, however, was objectively clear and not obscured by Cadleway's request that McKinney confirm or dispute the amount she owed. Accordingly, we reverse the judgment of the district court and remand with instructions to enter judgment for Cadleway.

I. Background

Reverend Versia McKinney's Chicago home was damaged in 1996 when a sewer backed up into her basement due to flooding. Unable to afford the repairs, McKinney applied for and received a disaster loan for $5,200 from the SBA. The loan agreement authorized the SBA to demand immediate payment of the entire balance should McKinney fail to make a scheduled payment. Indeed, at some point after disbursement of the loan, McKinney was unable to keep up with the payments and ceased making them altogether, although the SBA never demanded that she pay the outstanding balance.

Instead, in 2002 the SBA sold McKinney's loan to Lehman Capital/Aurora Loan Servicing Inc., which eventually sold it to

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Cadleway. Cadleway's first contact with McKinney was in September 2004 when it issued a collection letter informing her that it had purchased the debt and that she should begin making payments to the new address provided. A bold-faced, underlined notice on the front of the letter directed McKinney to read the “ Validation of Debt Notice" on the reverse side of the letter.

The “ Validation of Debt Notice" on the back of the letter was designed to comply with the FDCPA by informing McKinney of her statutory rights regarding the debt. The notice stated that according to Cadleway's records, McKinney owed $4,370.02, all but $337.39 of which was principal on the original loan. The notice also stated that McKinney had 30 days to notify Cadleway if she disputed the debt, and in that instance Cadleway would obtain and mail to her a verification of the debt, its amount, and the contact information of the original creditor. The notice further stated that if McKinney did not dispute the validity of the debt within 30 days, then Cadleway would assume the debt was valid. At the bottom of the notice was a form on which McKinney was asked to “ confirm this balance or state the amount which you believe is the correct balance."

McKinney sent the letter to Michelle Weinberg, an attorney with the Legal Assistance Foundation of Metropolitan Chicago. Weinberg replied to Cadleway, asking it to “ cease all further communications regarding this account" because Cadleway was not a licensed debt collector and McKinney “ is simply unable to pay this debt." McKinney then filed this action in the district court under 15 U.S.C. § 1692k, which makes debt collectors who violate the FDCPA civilly liable for actual and statutory damages as well as attorney's fees and court costs. McKinney alleged that Cadleway's collection letter violated the FDCPA because an unsophisticated consumer would be confused about her right to dispute the debt and obtain verification of its validity. McKinney asked only for statutory damages and attorney's fees; she did not claim actual damages.

The case was initially assigned to District Judge Ronald Guzmán, and both parties moved for summary judgment. Judge Guzmán held that Cadleway's validation notice was confusing on its face to the unsophisticated consumer but did not rule on whether Cadleway was a “ debt collector" under the FDCPA or whether McKinney's loan was a “ debt" within the meaning of the statute.

The case was thereafter transferred to District Judge Virginia Kendall, and both parties again moved for summary judgment. Judge Kendall held that McKinney's obligation was a “ debt" within the meaning of the FDCPA and that Cadleway was a “ debt collector" under the FDCPA because it had acquired and attempted to collect a debt that was in default at the time of acquisition.1 Judge Kendall then entered judgment for McKinney and later amended the judgment to award her statutory damages of $1,000-the maximum allowed-as well as attorney's fees and costs.

II. Discussion

A. Standard of Review

A district court's grant of summary judgment is reviewed de novo. Matthews v. Milwaukee Area Local Postal Workers Union, AFL-CIO, 495 F.3d 438, 441 (7th Cir.2007). The evidence in the record

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must be viewed in the light most favorable to the nonmoving party, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), and on cross-motions for summary judgment, inferences are drawn in favor of the party against whom the motion under consideration was made. Hess v. Reg-Ellen Mach. Tool Corp., 423 F.3d 653, 658 (7th Cir.2005). When the district court considers cross-motions for summary judgment, granting one and denying the other, the denial of summary judgment “ has merged into the final judgment and is therefore appealable" as part of the appeal from the final judgment granting the opposing party's motion. Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir.1997). Summary judgment is appropriate when “ the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c).

B. McKinney's FDCPA Claim

The FDCPA was enacted to combat “ abusive, deceptive, and unfair debt collection practices." 15 U.S.C. § 1692. To that end, the Act regulates communications relating to debt collection (§ 1692c), abusive practices of debt collectors (§ 1692d), and using false or misleading information in collection notices (§ 1692e). Relevant to this case is § 1692g, which governs a debt collector's “ initial communication with a consumer in connection with the collection of any debt" and requires, among other things, that the debt collector provide notice of the consumer's right to dispute the validity of the debt and receive verification of it. § 1692g(a). Consumers may sue to enforce the Act's provisions and, if successful, recover actual damages, statutory damages, and attorney's fees and costs. § 1692k.

1. Cadleway's Status as a “ Debt Collector


The FDCPA applies only to “ debt collectors" seeking satisfaction of “ debts" from “ consumers" ; it does not apply to “ creditors." Schlosser, 323 F.3d at 536. The Act defines “ creditor" as follows:

The term “ creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

§ 1692a(4) (emphasis added). The Act defines “ debt collector" as follows:

The term “ debt collector" means 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.

§ 1692a(6) (emphasis added).

The statutory definition of “ debt collector" thus has two subcategories. It includes any person who: (1) uses an instrumentality of interstate commerce or the mails in “ any business the principal purpose of which is the collection of any debts" ; or (2) “ regularly collects or attempts to collect ... debts owed or due or asserted to be owed or due another." This second subcategory of debt collectors refers back to a group specifically excluded from the Act's definition of creditors-those who receive “ an assignment...

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