Aargon Agency, Inc. v. O'Laughlin

• Docket Number: 22-15352
• Decision Date: 15 June 2023
• Citation: 70 F.4th 1224
• Parties: AARGON AGENCY, INC., Nevada corporation; Allied Collection Services, Inc., a Nevada corporation; Assetcare, LLC, a Texas limited liability company; Capio Partners, LLC, a Texas limited liability company; CF Medical, LLC, a Nevada limited liability company; Clark County Collection Service, LLC, a Nevada limited-liability company; Collection Service of Nevada, a Nevada corporation; Nevada Collectors Association, a Nevada non-profit corporation; Plusfour, Inc., a Nevada corporation; RM Galicia, Inc., doing business as Progressive Management, LLC; The Law Offices of Mitchell D. Bluhm & Associates, LLC, a Georgia limited liability company, Plaintiffs-Appellants, v. Sandy O'LAUGHLIN, in her capacity as Commissioner of State Of Nevada Department Of Business And Industry Financial Institutions Division, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

70 F.4th 1224

AARGON AGENCY, INC., Nevada corporation;

Allied Collection Services, Inc., a Nevada corporation;

Assetcare, LLC, a Texas limited liability company;

Capio Partners, LLC, a Texas limited liability company;

CF Medical, LLC, a Nevada limited liability company;

Clark County Collection Service, LLC, a Nevada limited-liability company;

Collection Service of Nevada, a Nevada corporation;

Nevada Collectors Association, a Nevada non-profit corporation;

Plusfour, Inc., a Nevada corporation;

RM Galicia, Inc., doing business as Progressive Management, LLC;

The Law Offices of Mitchell D. Bluhm & Associates, LLC,a Georgia limited liability company, Plaintiffs-Appellants, v. Sandy O'LAUGHLIN, in her capacity as Commissioner of State Of Nevada Department

Of Business And Industry Financial Institutions Division, Defendant-Appellee.

No. 22-15352

United States Court of Appeals, Ninth Circuit

Argued and Submitted September 2, 2022 San Francisco, California

Filed June 15, 2023

Appeal from the United States District Court for the District of Nevada, Richard F. Boulware II, District Judge, Presiding, D.C. No. 2:21-cv-01202-RFB-BNW

Patrick J. Reilly (argued), Brownstein Hyatt Farber Schreck LLP, Las Vegas, Nevada; James K. Schultz, Sessions Israel & Shartle LLC, San Diego, California; David Israel, Sessions Fishman Nathan & Israel LLC, Metairie, Louisiana; for Plaintiffs-Appellants.

Kiel Ireland (argued), Deputy Attorney General; Office of the Nevada Attorney General; Carson City, Nevada; Akke Levin, Deputy Attorney General; Steven Shevorski, Chief Litigation Counsel; Aaron D. Ford, Attorney General of Nevada; Office of the Nevada Attorney General; Las Vegas, Nevada; for Defendant-Appellee.

Rusty Graf, Black & LoBello, Las Vegas, Nevada; James Wadhams, Black & Wadhams PLLC, Las Vegas, Nevada, for Amicus Curiae Nevada Hospital Association.

Before: William A. Fletcher, Jay S. Bybee, and Lawrence VanDyke, Circuit Judges.

Opinion by Judge W. Fletcher;

Dissent by Judge VanDyke

OPINION

W. FLETCHER, Circuit Judge:

In June 2021, Nevada enacted Senate Bill 248 ("S.B. 248"), Act of June 2, 2021, ch. 291, 2021 Nev. Stat. 1668, in response to the COVID-19 pandemic. S.B. 248 requires debt collectors to provide written notification to debtors 60 days before taking any action to collect a medical debt. Plaintiffs are entities engaged in consumer debt collection. They filed suit in district court against defendant, Commissioner of the Financial Institutions Division of Nevada's Department of Business and Industry, bringing a facial challenge to the law. They moved for a temporary restraining order and a preliminary injunction, contending that S.B. 248 is unconstitutionally vague, violates the First Amendment, and is preempted by both the federal Fair Credit Reporting Act ("FCRA") and the Fair Debt Collection Practices Act ("FDCPA").

The district court denied plaintiffs' motion for a temporary restraining order and a preliminary injunction. Plaintiffs timely appealed the denial of the preliminary injunction. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

I. Background

Plaintiffs-appellants Aargon Agency, Inc. and others ("plaintiffs") are corporations and limited-liability companies that engage in the collection of consumer debt (including medical debt) and in credit reporting. Plaintiffs generally work on a contingency basis, getting paid only if they succeed in collecting debt. Defendant-appellee Sandy O'Laughlin ("defendant" or "Commissioner") is Commissioner of the Financial Institutions Division of Nevada's Department of Business and Industry.

Nevada enacted S.B. 248 in response to the COVID-19 pandemic. See Minutes of the Sen. Comm. on Com. and Lab.: Hearing on S.B. 247 and 248, 2021 Leg., 81st Sess. 11 (Nev. Mar. 2021) [hereinafter Minutes]. The governor signed the bill into law on June 2, 2021, and it went into effect on July 1, 2021.

S.B. 248 amends Chapter 649 of the Nevada Revised Statutes, which governs debt collection agencies. S.B. 248 § 1 (Nev. 2021). Section 7 of S.B. 248 requires debt collection agencies to send a written notification to medical debtors 60 days before taking any action to collect a medical debt. It provides:

Not less than 60 days before taking any action to collect a medical debt, a collection agency shall send by registered or certified mail to the medical debtor written notification that sets forth:

(a) The name of the medical facility, provider of health care or provider of emergency medical services that provided the goods or services for which the medical debt is owed;

(b) The date on which those goods or services were provided; and

(c) The principal amount of the medical debt.

Id. § 7(1). The notification must provide the name of the collection agency and must inform the debtor that, as applicable, either the "medical debt has been assigned to the collection agency for collection" or that the "collection agency has otherwise obtained the medical debt for collection." Id. § 7(2).

Section 7.5 permits a collection agency to accept a voluntary payment from the debtor, so long as certain conditions are met. An agency may accept voluntary payment only if the medical debtor initiates contact with the agency. Id. § 7.5(1)(a). To accept voluntary payment, the agency must disclose to the debtor that "payment is not demanded or due," and that the "medical debt will not be reported to any credit reporting agency during the 60-day notification period specified in [§ 7(1)]." Id. § 7.5(1)(b). "No action by a medical debtor to initiate contact with a collection agency may be construed to allow the collection agency to take action to collect the medical debt before the expiration of the 60-day notification period . . . ." Id. § 7.5(2).

After briefing to this court but before oral argument, defendant promulgated regulations implementing S.B. 248. See Nev. Admin. Code R055-21 (adopted March 23, 2022; filed June 13, 2022). The regulations define "action to collect a medical debt" for purposes of § 7 and § 7.5 of S.B. 248 as "any attempt by a collection agency or its manager, agents or employees to collect a medical debt from a medical debtor." Id. § 3(1). The regulations provide six examples of actions that are, and four examples that are not, "action[s] to collect a medical debt." Examples of actions to collect a medical debt are "[p]lacing telephone calls to the medical debtor"; "[s]ending letters and notices, other than a 60-day notification, to the medical debtor"; "[c]ontacting the medical debtor by any electronic means"; "[r]eporting the medical debt to any credit reporting agency"; [d]emanding payment of the medical debt"; and "[c]ommencing any civil action against the medical debtor." Id. Examples of actions that are not actions to collect a medical debt are "[a]ny action initiated by a medical debtor"; [t]he provision to a medical debtor of clarification relating to the content of a 60-day notification by a collection agency or its manager, agents or employees if the contact is initiated by the medical debtor"; "[s]ending verification of a medical debt to the medical debtor if requested by the medical debtor"; and "[s]ending a receipt to a medical debtor for a voluntary payment." Id.

After S.B. 248 became law but before it went into effect, plaintiffs filed suit in the district court. Plaintiffs argued, inter alia, that S.B. 248 is unconstitutionally vague, constitutes a prior restraint in violation of the First Amendment, and is preempted by the FCRA and the FDCPA. Plaintiffs requested prospective injunctive relief, including a temporary restraining order and a preliminary injunction.

The district court denied plaintiffs' motion for a temporary restraining order and a preliminary injunction, holding that plaintiffs are unlikely to succeed on the merits of their claims.

Plaintiffs timely appealed the denial of their motion for a preliminary injunction.

II. Standard of Review

We review a denial of a preliminary injunction for abuse of discretion. CTIA-The Wireless Ass'n v. City of Berkeley, 928 F.3d 832, 838 (9th Cir. 2019). "An abuse of discretion occurs when the district court based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Id. (quoting Friends of the Wild Swan v. Weber, 767 F.3d 936, 942 (9th Cir. 2014)).

III. Discussion

"A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest." Winter v. NRDC, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (brackets added). We use a "sliding scale" approach according to which "a stronger showing of one element may offset a weaker showing of another." All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). For example, "a preliminary injunction could issue where the likelihood of success is such that serious questions going to the merits were raised and the balance of hardships tips sharply in [plaintiff's] favor." Id. (alteration in original) (internal quotation marks omitted).

A. Likelihood of Success

On appeal, plaintiffs make three arguments directed to the merits. They argue that S.B. 248 is unconstitutionally vague; that S.B. 248 violates the First Amendment; and that the FCRA and the FDCPA preempt S.B. 248. We agree with the district court that none of these arguments is likely to succeed. We address each in turn.

1. Vagueness

Plaintiffs argue that S.B. 248 is unconstitutionally vague because it fails to define the term "any action to collect a medical debt" contained in § 7(1), and thereby allows for arbitrary enforcement by the State. Plaintiffs argue that debt collectors are "left to guess" whether they are allowed, for example, to verify an incoming caller's identity, to answer a debtor's questions about their debt, or to assist with processing...