Sparks v. EquityExperts.org, LLC, 18-2378

• Citation: 936 F.3d 348
• Decision Date: 21 August 2019
• Docket Number: No. 18-2378,18-2378
• Parties: Melvin SPARKS ; Angela Sparks, Plaintiffs-Appellants, v. EQUITYEXPERTS.ORG, LLC, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

936 F.3d 348

Melvin SPARKS ; Angela Sparks, Plaintiffs-Appellants,

v.EQUITYEXPERTS.ORG, LLC, Defendant-Appellee.

No. 18-2378

United States Court of Appeals, Sixth Circuit.

Argued: August 7, 2019

Decided and Filed: August 21, 2019^*

ARGUED: Edward A. Mahl, MICHIGAN CONSUMER CREDIT LAWYERS, Southfield, Michigan, for Appellants. Katrina M. DeMarte, MAGDICH LAW, Livonia, Michigan, for Appellee. ON BRIEF: Edward A. Mahl, MICHIGAN CONSUMER CREDIT LAWYERS, Southfield, Michigan, for Appellants. Katrina M. DeMarte, Jennifer R. Anstett, MAGDICH LAW, Livonia, Michigan, for Appellee.

Before: ROGERS, BUSH, and LARSEN, Circuit Judges.

ROGERS, Circuit Judge.

Melvin and Angela Sparks own property in a neighborhood overseen by a homeowners’ association. When they fell behind on their assessments, the Association engaged EquityExperts.org, LLC ("Equity Experts")—a debt-collection company—to collect that debt on the Association’s behalf. During its collection efforts, Equity Experts also sought to collect from the Sparkses the fees it charges the Association for its collection services. The Sparkses contend that Equity Experts’ attempts to collect those fees violated the Fair Debt Collection Practices Act ("FDCPA"). That Act prohibits debt collectors from, among other things, attempting to collect debts not "expressly authorized by the agreement creating the debt or permitted by law." 15 U.S.C. § 1692f(1). But the agreement here expressly authorizes the Association to collect its "costs"—which, in this case, are Equity Experts’ fees.

The Sparkses own property in the Four Mile Run neighborhood in Virginia. The neighborhood is a deed-restricted community managed by the Four Mile Run Homeowner’s Association.¹ By accepting title to their property, the Sparkses agreed—per the Association’s recorded Declaration of Covenants—to pay assessments to the Association for the management and upkeep of neighborhood common areas. Article IV of the Declaration also sets out the consequences for failing to timely pay those assessments:

The annual and special assessments, together with interest, costs and reasonable attorney’s fees, shall be a charge on the land and shall be a continuing lien upon the property against which each such assessment is made. Each such assessment, together, with interest, costs, and reasonable attorney’s fees, shall also be the personal obligation of the person who was the Owner of such property at the time the assessment fee becomes due.

In 2016, the Sparkses fell behind on their payments. As of December 12, 2016, they owed $220 in past-due assessments and fees. Around that time, the Association sent its account with the Sparkses to Equity Experts for collection. Earlier that year, the Association and Equity Experts had entered into a collection agreement, through which the Association engaged Equity Experts as its exclusive collection agent. The 2016 Collection Agreement sets out a schedule of fees for Equity Experts’ collection services and authorizes Equity Experts to collect those fees directly from delinquent homeowners.

Once the Association sent the Sparkses’ account for collection, Equity Experts began its efforts to collect. On December 13, 2016, Equity Experts sent the Sparkses a dunning letter, stating that "[t]he Association reports that you have not paid your share of the Association’s assessments and your total unpaid balance is $490." The letter explained that the total balance "may also include special assessments, interests, fees and/or fines charged by the Association, and any attorney’s fees and collection costs incurred by the Association to collect the debt." In fact, that unpaid balance included a $270 fee for Equity Experts’ FDCPA Compliance Assurance Package/Pre-Lien Review Process. Over the next month or so, Angela Sparks claims she called Equity Experts several times to ask about the debt—but without any answer or return call. The collection process continued over the next several months, with additional letters and a mounting balance, eventually totaling more than $1000.

In April 2017, the Sparkses sued Equity Experts for violating the Fair Debt Collection Practices Act in the course of its collection efforts. Eventually the Sparkses moved for summary judgment, arguing that Equity Experts had violated the FDCPA by (1) collecting its fees directly from the Sparkses without authorization and (2) attempting to collect from the Sparkses after agreeing to a settlement. The case went to trial on the second issue, and a jury returned a verdict in favor of Equity Experts. The Sparkses do not challenge that verdict, but they do challenge the district court’s grant of summary judgment in favor of Equity Experts on the first issue: whether Equity Experts was expressly authorized to collect its fees from the Sparkses. We review a district court’s ruling on a summary judgment motion de novo. Rogers v. O’Donnell , 737 F.3d 1026, 1030 (6th Cir. 2013).

The FDCPA was enacted to "eliminate abusive debt collection practices by debt collectors." 15 U.S.C. § 1692(e). To that end, the Act bars debt collectors from using "any false, deceptive, or misleading representation or means," § 1692e, or "unfair or unconscionable means," § 1692f, to collect a debt. Both parties agree that Equity Experts is a "debt collector" and that the unpaid Association assessments are "debt" under the Act. They differ, of course, as to whether Equity Experts violated the Act.

The Sparkses contend that Equity Experts flouted each of those sections by falsely representing the "character, amount, or legal status" of their Association debt, § 1692e(2)(A), and by collecting an amount that was not "expressly authorized by the agreement creating the debt or permitted by law," § 1692f(1). Both supposed violations center on Equity Experts’ attempts to collect its collection fees from the Sparkses. This appeal turns on whether the agreement creating the debt—the Declaration—expressly authorizes the collection of those fees.

The Declaration expressly authorizes the collection of the Association’s costs, which are comprised of Equity Experts’ fees. By accepting a deed to property within the Four Mile Run neighborhood, the Sparkses agreed to pay annual and special assessments or charges. The Declaration states that, "Each such assessment, together, with interest, costs, and reasonable attorney’s fees" shall "be a charge on the land and shall be a continuing lien upon the property" and "shall also be the personal obligation" of the property owner. The Sparkses concede they fell behind on their assessments, which amounted to debt that the Association was entitled to collect. In the district court, the Sparkses conceded also that the Association could have charged them its own costs of collection. The Sparkses maintain, however, that the Declaration says nothing about—and thus does not expressly authorize—Equity Experts’ collecting its fees directly from them.

That argument misunderstands that Equity Experts’ fees are the Association’s costs of collection. The Association hired Equity Experts to serve as its collection agent. In doing so, the Association agreed to two Collection Agreements (one in 2016 and one in 2017), containing schedules of fees that Equity Experts charged to perform various collection functions on the Association’s behalf. The 2016 Collection Agreement (in force when Equity Experts first sought collection from the Sparkses) authorizes Equity Experts to charge those collection costs directly to the delinquent homeowner’s account, but the Association remains on the hook for any unpaid fees if collection of an account is stopped. In other words, the fee schedule represents what it costs the Association to retain Equity Experts to collect debt on its behalf. So when Equity Experts charges those fees to homeowners in the first place, it is collecting those costs to cover what the Association would otherwise owe Equity Experts.

The slightly amended 2017 Collection Agreement between Equity Experts and the Association, which went into effect in April 2017, further supports this conclusion. That agreement confirms that the fee schedule is really a menu of "fees and costs charged to [the] Association ," which are then added to the debtor’s account for purposes of collection. The schedules attached to the 2017 Agreement clarify that

The Association hereby authorizes Equity Experts to charge the fee(s) listed in Schedule A and Schedule B, below, together with all costs advanced or incurred by EquityExperts.org to Association who may add these amounts to the account of the delinquent Unit and to the Unit Owner(s).

Although the 2017 Collection Agreement went into effect only toward the very end of Equity Experts’ attempts to collect from the Sparkses, it confirms that Equity Experts’ fees are the Association’s collection costs.

In short, the Declaration expressly authorizes the Association to collect its costs. Equity Experts’ fees make up the Association’s costs. Thus, the Declaration expressly authorizes the collection of Equity Experts’ fees.

None of the Sparkses’ contrary arguments is persuasive.

First, the Sparkses argue that Equity Experts could not legally collect the costs it claimed were due because those costs had not yet been incurred by the Association.² As an initial point, the Declaration says nothing about costs being incurred; it merely provides that the Association’s costs become the personal obligation of the delinquent homeowner. That said, the use of the term "costs" does fairly imply that the homeowner is obligated to pay only something akin to the actual costs of collection—and not any charge, unrelated to actual costs, that the Association decides to levy. Otherwise, the authorization of "costs" would be meaningless and open to abuse.

Courts have, along these lines, interpreted contracts that make a debtor responsible for "all costs of collection" not to authorize percentage fees unmoored from the actual costs of collection. See Bradley...