McMahon v. LVNV Funding, LLC

• Decision Date: 11 March 2014
• Docket Number: Nos. 12–3504,13–2030.,s. 12–3504
• Citation: 744 F.3d 1010
• Parties: Scott McMAHON, individually and on behalf of a class, Plaintiff–Appellant, v. LVNV FUNDING, LLC, et al., Defendants–Appellees. Juanita Delgado, individually and on behalf of a class, Plaintiff–Appellee, v. Capital Management Services, LP, et al., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

744 F.3d 1010

Scott McMAHON, individually and on behalf of a class, Plaintiff–Appellant,

v.LVNV FUNDING, LLC, et al., Defendants–Appellees.

Juanita Delgado, individually and on behalf of a class, Plaintiff–Appellee,

v.Capital Management Services, LP, et al., Defendants–Appellants.

Nos. 12–3504, 13–2030.

United States Court of Appeals,Seventh Circuit.

Argued Sept. 25, 2013.

Decided March 11, 2014.

Daniel A. Edelman, Attorney, Edelman Combs Latturner & Goodwin, Chicago, IL, for Plaintiff–Appellant.

David M. Schultz, Attorney, Stephen R. Swofford, Attorney, Hinshaw & Culbertson, Chicago, IL, for Defendants–Appellees.

Daniel A. Edelman, Attorney, Francis R. Greene, Attorney, Edelman Combs Latturner & Goodwin, Chicago, IL, for Plaintiff–Appellee.

James K. Schultz, Attorney, Sessions, Fishman, Nathan & Israel, LLP, Chicago, IL, for Defendants–Appellants.

Before WOOD, Chief Judge, and FLAUM and SYKES, Circuit Judges.

WOOD, Chief Judge.

The underlying question presented by these two appeals, which we have consolidated for purposes of an opinion, relates to the circumstances under which a dunning letter for a time-barred debt could mislead an unsophisticated consumer to believe that the debt is enforceable in court, and thereby violate the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. After oral argument in these cases, we held that efforts to collect time-barred debts can violate the statute. See Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir.2013). In Delgado, we face a variant on that issue; it concerns the effect of a settlement offer in the dunning letter. McMahon raises a question of possible mootness in the wake of the defendants' effort to buy out the putative named plaintiff. We conclude that McMahon is not moot, and thus that the district court's dismissal of the action must be reversed. In Delgado, which is before this court on an interlocutory appeal based on 28 U.S.C. § 1292(b), the district court denied the defendants' motion to dismiss. We affirm that decision.

I. Facts

A. McMahon

In 1997, Scott McMahon received a bill from a utility company, Nicor Gas. Apparently McMahon did not pay that bill. Fourteen years later, in September 2011, defendant LVNV Funding, LLC, purchased the debt, which by then was for $584.98. LVNV retained a collection agency, Tate & Kirlin (Tate), to pursue payment. (Although there are several defendants, we refer to them as LVNV for ease of exposition.) Tate sent the letter that sparked this lawsuit to McMahon on December 19, 2011. At the top of the letter, information about the immediate creditor (LVNV), the previous creditor (Nicor Gas), and the total due ($584.98) appeared. The text of the letter read as follows:

This account has been listed with our office for collection. This communication is from a debt collector. This is an attempt to collect a debt and any information obtained will be used for that purpose.

An Opportunity: We are pleased to extend to you an offer to settle your account in full for $233.99. This represents a savings of 60% off your balance.

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request of this office [ sic ] in writing within 30 days after receiving this notice this office will provide you with the name and address of the original creditor, if different from the current creditor.

At the bottom of the page there was a tear-off payment coupon, which the recipient was instructed to detach and return with his payment. The letter said nothing about when the debt was incurred, and it contained no hint that the four-year statute of limitations applicable in Illinois had long since expired. See 810 ILCS 5/2–725.

On receiving the letter, McMahon responded to Tate with a request for verification, stating that “we can settle this quickly” once the debt was verified. In January 2012, one of LVNV's affiliates (defendant Resurgent) replied to McMahon. It gave him some details, including the fact that LVNV now owned the debt, that LVNV had acquired the debt from Nicor on September 23, 2011, and that the amount was $584.98. Resurgent kept mum, however, about the advanced age of the debt—a detail that would have alerted either McMahon or his lawyer to the fact that he had an iron-clad defense under the statute of limitations.

The next month, McMahon filed a suit under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692e, 1692f, on behalf of himself and a class. On July 5, 2012, the district court issued an order dismissing McMahon's classwide allegations, but denying LVNV's motion to dismiss his individual claims. McMahon promptly filed a motion to reconsider. In an order dated August 13, 2012, the court denied the motion to reconsider “our earlier dismissal of his classwide claims,” but it granted him leave to amend his class complaint. Hours later, LVNV's attorney sent a fax to McMahon's attorney offering to settle the case. In exchange for McMahon's dropping his class claims, LVNV offeredto pay McMahon (1) statutory damages in the amount of $1,000 to satisfy his remaining individual claim under the FDCPA, (2) costs incurred on his individual claim, (3) a reasonable attorney's fee, and (4) “any other reasonable relief” in the event the court concluded that more was necessary. McMahon did not respond to the offer. Instead, two days later, he filed an amended class complaint along with an amended motion for class certification. LVNV responded with the same settlement offer, but McMahon again ignored it.

At that point, LVNV moved for dismissal of the entire case under Federal Rule of Civil Procedure 12(b)(1). LVNV took the position that its settlement offer rendered McMahon's individual claim moot, and that this made McMahon an inadequate representative of the proposed class. The district court found that the August 13 fax offered McMahon complete recovery for his individual claim, that it was made prior to class certification, and thus that it had the effect of depriving McMahon of a personal stake in the litigation. With no controversy meeting the requirements of Article III before it, the court granted LVNV's motion to dismiss for want of jurisdiction. In his appeal, McMahon contests both the finding that LVNV's settlement offer mooted the case and the original dismissal of the class claims under the FDCPA.

B. Delgado

On February 7, 2012, defendant Capital Management Services LP (CMS) sent a debt-collection letter to plaintiff Juanita Delgado, another resident of Illinois. The letter stated, in relevant part:

Dear Juanita Delgado,

This company has been engaged by RESURGENT CAPITAL SERVICES, LP, the servicer of the account, to resolve your delinquent debt of $2404.13. Please submit your payment and make your check or money order payable to Capital Management Services, LP, to the above address.

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such verification or judgment. If you request this office in writing within 30 days after receiving this notice this office will provide you with the name and address of the original creditor, if different than the current creditor.

Capital Management Services, LP is authorized to accept less than the full balance due as settlement of the above account. The settlement amount of $721.24, which represents 30% of the amount presently owed, is due in our office no later than forty-five (45) days after receiving this notice. We are not obligated to renew this offer.

For your convenience, this settlement may be made online at: www. cms- trans. com. For other payment options, please contact Capital Management Services....

This is an attempt to collect a debt; any information obtained will be used for that purpose. This communication is from a debt collector.

The letter did not say that CMS was time-barred from enforcing the debt under Illinois's statute of limitations, nor did it disclose when the debt was incurred. In fact, Delgado's letter was about an eight-year-old debt, which meant that any collection action would have been barred by Illinois's statute of limitations, if the debtor were savvy enough to raise the point. The letter also instructed the recipient to “detach and return [the] top portion with payment.”

Using the same lawyer as McMahon, Delgado filed a complaint under the FDCPA charging that CMS violated that statute by sending a dunning letter on a time-barred debt and including an offer of “settlement” which, if accepted, would in fact make the debtor worse off. CMS filed a motion to dismiss for failure to state a claim. In considering that motion, the district court decided that it was appropriate to give Skidmore deference to the views of the Federal Trade Commission, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency. See Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). As those agencies had argued in other cases, the court held that when “collecting on a time barred debt a debt collector must inform the consumer that (1) the collector cannot sue to collect the debt and (2) providing a partial payment would revive the...