Buchanan v. Northland Grp., Inc.

• Decision Date: 13 January 2015
• Docket Number: No. 13–2523.,13–2523.
• Parties: Esther BUCHANAN, on behalf of herself and a class, Plaintiff–Appellant, v. NORTHLAND GROUP, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

776 F.3d 393

Esther BUCHANAN, on behalf of herself and a class, Plaintiff–Appellant

v.NORTHLAND GROUP, INC., Defendant–Appellee.

No. 13–2523.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 7, 2014.

Decided and Filed: Jan. 13, 2015.

Rehearing En Banc Denied March 13, 2015.^*

ARGUED:Daniel A. Edelman, Edelman Combs Latturner & Goodwin LLC, Chicago, Illinois, for Appellant. David M. Schultz, Hinshaw & Culbertson LLP, Chicago, Illinois, for Appellee. Theodore Metzler, Federal Trade Commission, Washington, D.C., for Federal Amicus Curiae. ON BRIEF:Daniel A. Edelman, Cathleen M. Combs, Thomas E. Soule, Edelman Combs Latturner & Goodwin LLC, Chicago, Illinois, for Appellant. David M. Schultz, Joel D. Bertocchi, Hinshaw & Culbertson LLP, Chicago, Illinois, for Appellee. Theodore Metzler, FEDERAL TRADE COMMISSION, Washington, D.C., Brian Melendez, Dykema Gossett PLLC, Minneapolis, Minnesota, Donald S. Maurice, Jr., Maurice & Needleman, P.C., Flemington, New Jersey, for Amici Curiae.

Before SUTTON and KETHLEDGE, Circuit Judges; ROSENTHAL, District Judge.^**

SUTTON, J., delivered the opinion of the court in which ROSENTHAL, D.J., joined. KETHLEDGE, J. (pp. 400–02), delivered a separate dissenting opinion.

OPINION

SUTTON, Circuit Judge.

Northland Group made a “settlement offer” to Esther Buchanan to resolve an unpaid debt without disclosing that the statute of limitations had run on the debt. Claiming that the letter falsely implied that Northland could enforce the debt in court, Buchanan filed a class action on behalf of herself and other similarly situated debtors under the Fair Debt Collection Practices Act. Northland filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, prompting this question: Could this offer plausibly mislead an unsophisticated consumer into thinking her lender could enforce the debt in court? Answer: Yes, at least at the pleading stage of the proceedings. We reverse the district court's contrary decision.

I.

LVNV buys “uncollectable” debts at a discount—the older the debts, the greater the discount—and pays Northland Group to collect them. LVNV purchased a debt of Buchanan's and assigned it to Northland for collection. In late 2011, Northland sent Buchanan a letter attempting to collect part of the debt. Here is what the letter said:

Your past due account balance: $4,768.43

Your settlement offer: $1,668.96

Dear Esther M Buchanan,

LVNV Funding LLC, the current creditor of your account, has assigned the above referenced account to Northland Group, Inc. for collection. As of the date of this letter, you owe $4,768.43. Because of interest 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 866–699–2652 ext 3515.

The current creditor is willing to reduce your balance by offering you a settlement. We are not obligated to renew this offer. Upon receipt and clearance of $1,668.96, your account will be satisfied and closed and a settlement letter will be issued. This offer does not affect your rights set forth below. LVNV Funding LLC has purchased the above referenced account from the above referenced Previous Creditor [National City Bank]. LVNV Funding LLC has placed your account with this agency for collection.

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 after receiving this notice that you dispute the validity of this debt or any portion of it, 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 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.

Sincerely,

Northland Group, Inc.

R. 1–1.

The “settlement offer” did not disclose two things. It did not say that the Michigan six-year statute of limitations had run on the debt, which would have provided a complete defense to any lawsuit to recover the money.See Mich. Comp. Laws § 600.5807(8). And it did not say that a partial payment on a time-barred debt—if, say, Buchanan had not accepted the offer but instead paid $500 to decrease her balance—restarts the statute-of-limitations clock under Michigan law. See Yeiter v. Knights of St. Casimir Aid Soc'y, 461 Mich. 493, 607 N.W.2d 68, 71 (2000).

Such a settlement offer, to Buchanan's mind, falsely implied that Northland held a legally enforceable obligation. On her behalf and on behalf of similarly situated debtors, Buchanan sued Northland for violating the Fair Debt Collection Practices Act. See 15 U.S.C. §§ 1692 –1692p. Northland moved to dismiss the claim under Civil Rule 12(b)(6). In response, Buchanan claimed that the case implicated a question of fact—Was the letter misleading?—and required discovery, including with respect to the proposed testimony of Dr. Timothy E. Goldsmith, a professor of psychology who has studied consumers' attitudes toward time-barred debt and their understanding of communications like this one. See Timothy E. Goldsmith & Nathalie Martin, Testing Materiality Under the Unfair Practices Acts: What Information Matters when Collecting Time–Barred Debts?, 64 Consumer Fin. L.Q. Rep. 372 (2010).

The district court rejected Buchanan's discovery request and granted Northland's motion to dismiss, concluding that Northland's letter was not misleading as a matter of law. Buchanan appeals the dismissal of her lawsuit.

II.

The Fair Debt Collection Practices Act bans all “false, deceptive, or misleading” debt-collection practices. 15 U.S.C. § 1692e. As the addition of the term “misleading” confirms, the statute outlaws more than just falsehoods. That is why “[t]ruth is not always a defense,” Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 172 (6th Cir.2011), and that is why even a true statement may be banned for creating a misleading impression. In its illustrative (and non-exhaustive) list of violations, the statute prohibits a false representation of “the character, amount, or legal status of any debt.” 15 U.S.C. § 1692e(2)(A). The Act protects “all consumers,” the “shrewd” as well as the “gullible,” Fed. Home Loan Mortg. Corp. v. Lamar, 503 F.3d 504, 509 (6th Cir.2007) (internal quotation marks omitted), from practices that would mislead the “reasonable unsophisticated consumer,” one with some level of understanding and one willing to read the document with some care, Wallace v. Wash. Mut. Bank, F.A., 683 F.3d 323, 327 (6th Cir.2012). Dunning letters that appear misleading only by way of “bizarre,” “idiosyncratic,” or “nonsensical” readings do not violate the Act. Lamar, 503 F.3d at 510, 514 (internal quotation marks omitted).

In considering whether this letter creates a cognizable claim, we agree with two premises of Northland's argument (and the district court's holding). Under Michigan law, as under the law of most states, a debt remains a debt even after the statute of limitations has run on enforcing it in court. See De Vries v. Alger, 329 Mich. 68, 44 N.W.2d 872, 876 (1950) ; see also, e.g., Ingram v. Earthman, 993 S.W.2d 611, 634 n. 19 (Tenn.Ct.App.1998), abrogated on other grounds by Fahrner v. SW Mfg., Inc., 48 S.W.3d 141 (Tenn.2001), as recognized by Redwing v. Catholic Bishop for Diocese of Memphis, 363 S.W.3d 436, 461 n. 25 (Tenn.2012). As a result, when the six-year limitations period ran on Buchanan's debt, that meant only that the creditor—LVNV today—could not enforce the debt in court without facing a complete legal defense to it. Legal defenses are not moral defenses, however. And a creditor remains free, in the absence of a bankruptcy order or something comparable preventing it from trying to collect the debt, to let the debtor know what the debt is and to ask her to pay it. There thus is nothing wrong with informing debtors that a debt remains unpaid or for that matter allowing them to satisfy the debt at a discount. For some individuals, such letters may offer a welcome solution to an outstanding debt.

Nor does a “settlement offer” with respect to a time-barred debt by itself amount to a threat of litigation. Even an unsophisticated consumer could not reasonably draw such an inference, as the dissent and we both agree. See Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 33 (3d Cir.2011) ; Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir.2001).

If we grant these two premises of Northland's argument, doesn't its conclusion follow—that this lawsuit should be dismissed as a matter of law? We think not, for three reasons.

First, whether a letter is misleading raises a question of fact. Generally speaking, “a jury should determine whether the letter is deceptive and misleading.” Kistner v. Law Offices of Michael P. Margelefsky, LLC, 518 F.3d 433, 441 (6th Cir.2008) ; see Grden, 643 F.3d at 172 (same); Hartman v. Great Seneca Fin. Corp., 569 F.3d 606, 613 (6th Cir.2009) (same). Courts do not lightly reject fact-based claims at the pleading stage. They may do so only after drawing all reasonable inferences from the allegations in the complaint in the plaintiff's favor and only after concluding that, even then, the complaint still fails to allege a plausible theory of relief. See Fed.R.Civ.P. 12(b)(6) ; Ashcroft v. Iqbal, 556 U.S. 662, 677–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

That is not to say that all such claims will go to a jury merely because they implicate a question of fact. A claim may be implausible on its face because even an unsophisticated consumer would not be confused, making discovery pointless and jury resolution unnecessary. See Evory v....