Bloom v. I.C. System, Inc.
| Decision Date | 10 August 1992 |
| Docket Number | No. 91-35060,91-35060 |
| Citation | 972 F.2d 1067 |
| Parties | Michael BLOOM, Plaintiff-Appellant, v. I.C. SYSTEM, INC., a Minnesota corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard L. Grant, Portland, Or., for plaintiff-appellant.
Andrew R. Gardner, Stoel, Rives, Boley, Jones & Grey, Portland, Or., for defendant-appellee.
Appeal from the United States District Court for the District of Oregon.
Before: GOODWIN, TANG and THOMPSON, Circuit Judges.
This case involves a loan between two friends that was erroneously reported to a debt collection agency. In 1985, plaintiff Michael Bloom, an attorney, borrowed $5,000 from his friend, Steven Parker. Bloom used the proceeds from the loan as a venture capital investment in a software company. Parker did not necessarily know or care what the money was being used for.
Parker is an insurance agent and president of Parkwest Insurance Services, Inc., ("Parkwest"). In 1988, Parkwest entered into a contract with defendant I.C. System ("I.C.") for debt collection services. Unknown to Parker, a Parkwest employee submitted a debt for collection listing Bloom as the debtor. I.C. commenced collection efforts.
Bloom notified Parker of the mistake and Parker made efforts by phone and letter to explain that Bloom's reported debt was an error. I.C. responded by requesting further written documentation to verify the fact that no debt was owed. Thereafter, I.C. listed the debt as contested.
In May 1989, Bloom filed suit against I.C. alleging unlawful debt collection practices in violation of the Fair Debt Collection Practices Act ("FDCPA"), see 15 U.S.C. §§ 1692e, 1692f, as well as an alternative state law claim for libel. The district court granted the defendant's motion for summary judgment on both claims. See Bloom v. I.C. System, Inc., 753 F.Supp. 314 (D.Or.1990). We affirm.
The FDCPA protects consumers from unlawful debt collection practices. Consequently, the Act applies to consumer debts and not business loans. The term "debt" is defined as:
[A]ny obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes ...
15 U.S.C. § 1692a(5) (emphasis added).
Bloom correctly argues that given the small number of cases interpreting the term "debt" under the FDCPA, courts in other jurisdictions have looked for guidance to cases interpreting analogous provisions of the Consumer Credit Protection Act, 15 U.S.C. §§ 1601 to 1693r, such as the Truth in Lending Act ("TILA"). 1 See Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168 (3d Cir.1987). When classifying a loan, courts typically "examine the transaction as a whole," paying particular attention to "the purpose for which the credit was extended in order to determine whether [the] transaction was primarily consumer or commercial in nature." Tower v. Moss, 625 F.2d 1161, 1166 (5th Cir.1980).
The interpretation of the term "debt" under the FDCPA is apparently a matter of first impression for this court. Bloom urges us to characterize the loan as personal rather than commercial because the loan was informal in nature, with none of the trappings of a commercial loan, and because Parker's motivation in lending the money was personal rather than business in nature. We are not persuaded. The fact that a loan is informal or that the lender may have loaned the money for personal reasons does not make it a personal loan under the FDCPA. The Act characterizes debts in terms of end uses, covering debts incurred "primarily for personal, family or household purposes." Neither the lender's motives nor the fashion in which the loan is memorialized are dispositive of this inquiry.
How Bloom actually spent the money is not disputed. Bloom invested the proceeds of the loan as venture capital in a software company with which he was closely associated. Bloom candidly admitted in his deposition that this was the intended purpose of the loan.
Q. [By Mr. Gardner] And what was the purpose of the loan or of borrowing the money? What was your purpose in borrowing $5,000?
A. [By Mr. Bloom] I used the money for venture capital in an investment I was involved in, in and about that time.
The only issue is whether this intended use can be characterized as "primarily for personal, family or household purposes." We hold that it cannot. Bloom borrowed the money to invest in a software company. This was a business loan.
Bloom cites Thorns v. Sundance Properties, 726 F.2d 1417 (9th Cir.1984), for the proposition that, under the TILA, the mere fact that a loan is used for investment purposes does not necessarily render it a commercial loan. Thorns held that the factors employed by the Federal Reserve Board under Regulation Z, see 12 C.F.R. § 226 Supp. 1, § 226.3(a)(2), are relevant in determining whether a transaction is commercial or personal for the purposes of the Truth in Lending Act. See 726 F.2d at 1419. The Thorns court expressed no opinion as to the factual issues involved in the case and stated that "[w]hether an investment loan is for a personal or a business purpose requires a case by case analysis." Id.
Even if we were to apply the factors identified in Thorns, it would not alter our conclusion. Bloom was president of the company he invested in and he represented the venture in his capacity as an attorney. Consequently, Bloom, the borrower, personally managed important aspects of the investment. Finally, the stated purpose of the loan was "for venture capital in an investment." The Thorns factors simply reinforce the contention that this was a commercial loan. 2
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