Capital One Bank (U.S.), N.A. v. Denboer

• Decision Date: 25 August 2010
• Docket Number: No. 09-0354.,09-0354.
• Citation: Capital One Bank (U.S.), N.A. v. Denboer, 791 N.W.2d 264 (Iowa App. 2010)
• Parties: CAPITAL ONE BANK (USA), N.A., Plaintiff-Appellant, v. Aric M. DENBOER, Defendant-Appellee. Capital One Bank (USA), N.A., Plaintiff-Appellant, v. Carolyn L. Kelley, Defendant-Appellee.
• Court: Iowa Court of Appeals

791 N.W.2d 264

CAPITAL ONE BANK (USA), N.A., Plaintiff-Appellant,

v.Aric M. DENBOER, Defendant-Appellee.

Capital One Bank (USA), N.A., Plaintiff-Appellant,

v.Carolyn L. Kelley, Defendant-Appellee.

No. 09-0354.

Court of Appeals of Iowa.

Aug. 25, 2010.

Charles Litow and Piper Lori Hughes, Cedar Rapids, for appellant.

Aric Denboer, Rock Valley, appelleepro se.

Carolyn Kelley, North English, appelleepro se.

Stephen J. Holtman and Abbe M. Stensland of Simmons, Perrine, Moyer, Bergman, P.L.C., Cedar Rapids, for amicus curiae The National Association of Retail Collection Attorneys.

Thomas J. Miller, Attorney General, and Jessica J. Whitney, Assistant Attorney General, for amicus curiaeAttorney General of Iowa.

Heard by VAITHESWARAN, P.J., and MANSFIELD and DANILSON, JJ.

MANSFIELD, J.

A credit card issuer challenges the dismissal of two separate small claims actions for failure to comply with Iowa Code section 537.5114(2007).The lower courts ruled that section 537.5114 requires the creditor to provide the credit card user's entire transaction history dating back to when the account last had a zero balance.We disagree.We hold the creditor may comply with section 537.5114 in either of two ways.First, it may establish the prima facie elements of an account stated cause of action.This approach does not require proof of individual transactions.Alternatively, the creditor may provide an account history, such as electronic or hard copies of past monthly account statements.In doing so, the creditor would not be completely barred from recovery if it cannot go back to a zero balance, but would be limited to recovering any increase in debt for which itemization has been provided.Because the lower courts applied an erroneous interpretation of section 537.5114, we reverse and remand for further proceedings.

I.Background Facts and Proceedings.

This appeal involves two unrelated small claims actions brought by Capital One Bank (USA), N.A. (Capital One) against credit card account holders Carolyn Kelley and Aric Denboer.On October 22, 2008, Capital One filed an original notice in Iowa County asserting Kelley had defaulted on a credit card agreement and sought damages in the amount of $4036.42.On October 27, 2008, Capital One filed an original notice in Sioux County asserting Denboer had defaulted on a credit card agreement and sought damages in the amount of $974.96.Each original petition was accompanied by (1) a notice to cure default sent to the defendant; (2) a document titled "Verification of Account[,] Identification of Judgment Debtor, and Certificate re Military Service"; (3) a document titled "Capital One Credit Card Terms and Conditions" that had a copyright of 2002; and (4) some monthly billing statements.However, there was no information as to when each defendant had opened his/her credit card account and the billing statements did not begin with an account balance of zero.¹

Kelley and Denboer were personally served with notice, but failed to appear.In each case, the small claims court declined to enter the requested default judgment.Instead, orders were entered stating Capital One had failed to comply withthe requirements of Iowa Code section 537.5114 and granting Capital One thirty days to correct the defects.In each case, the order was based on a form, which stated in part:

This file comes on for entry of a default judgment.After reviewing the file, the Court determines that the Plaintiff's action is based on a consumer credit transaction as defined by Iowa Code 537.1301(11).The Plaintiff has failed to comply with the requirements of the ICCC as contained in Iowa Code Chapter 537 and/or Iowa Rule of Civil Procedure 1.961 in the particulars stated below:

....

____ The Plaintiff has failed to comply with the requirements of Iowa Code 537.5114(1).The Plaintiff's petition fails to allege the facts of the consumer's default, the amount to which the creditor is entitled, and an indication of how that amount was determined.

____ The Plaintiff has failed to comply with the requirements of Iowa Code 537.5114(2)."[I]n cases governed by the ICCC, 'no default judgment shall be entered in an action in favor of the creditor' unless a court is provided with information sufficient to compute the amount to which the creditor claims to be entitled.The information must be included in a verified complaint or in sworn testimony."ITT Fin. Servs. v. Zimmerman,464 N.W.2d 486, 489(Iowa Ct.App.1990).

In the Kelley case, both boxes were checked, indicating a failure to comply with subsections 1 and 2 of section 537.5114; in Denboer, only the second box, for subsection 2, was checked.

Capital One responded to each notice with a letter stating it did not believe it was required to produce an entire account history.In the Kelley action, Capital One said it had already filed all the billing statements it had; in Denboer, it included additional billing statements with the letter.²However, in neither case did Capital One introduce a billing statement that began with an account balance of zero.On December 23, 2008, and January 13, 2009, the magistrates dismissed the cases against Kelley and Denboer respectively for failure to comply with the courts' prior orders.

Capital One appealed the dismissals to the district courts.Although it argued at considerable length that it was not required to provide an accounting from a zero balance, Capital One requested in the concluding paragraph of each brief that the district court affirm the small claims court so it could appeal to the supreme court.Capital One explained:

Unfortunately, a reversal by the district court will not set precedent at the county or state level.The small claims court will be required to follow the decision in this case only, but may rule without regard to this decision in future cases.Currently, there are six other counties in Iowa which adhere to the same standard of requiring an accounting from a zero balance.In addition, there are eleven other counties which require far in excess of the last statement to obtain a default.In short, the standard for entering a default in small claims court is in a state of chaos.Cap One hopes that by bringing this issue to the state's highest court, uniformity and clarity can be returned to the small claims system.

On February 5, 2009, the Sioux County District Court affirmed the dismissal ofthe Denboer case stating, "Pursuant to Appellant's prayer, the Judgment of the Magistrate is hereby affirmed."Two weeks later, on February 19, 2009, the Iowa County District Court issued a detailed opinion generally upholding the dismissal of the Kelley case.³That court found that under Iowa Code section 537.5114, the court must "verify the amount of the debt at issue" in order to enter a default judgment and Capital One had not "met the particular requirements of Iowa Code section 537.5114 in regard to the starting balance."In short, the district court confirmed that Capital One needed to provide an accounting from a zero balance.

Capital One applied for discretionary review of both cases, which our supreme court granted.The appeals were consolidated and transferred to this court.SeeIowa Code § 631.16;Iowa R.App. P. 6.106.⁴

Capital One's applications for discretionary review indicate the requirements for collection of credit card debt vary considerably from county to county.Some jurisdictions appear to insist on full transaction histories, as did the lower courts here.Others apparently require only a "breakdown of principal and interest," documentation of "last charge or payment made," or something else.As one magistrate stated in an order that is part of our appellate record:

This Court is well aware that there are many views among Iowa Magistrates concerning what must be shown to obtain a default judgment in certain debt collection cases.

....

This may be a dream but hopefully in the future there will be a 'bright line' established that will yield universal criteria.

II.Standard of Review.

In a discretionary review of a small claims decision, the nature of the case determines the standard of review.Small claims actions that are tried at law are reviewed for correction of errors at law.A review of statutory construction is at law.We are bound, however, by a court's finding of fact if supported by substantial evidence.

GE Money Bank v. Morales,773 N.W.2d 533, 536(Iowa2009)(internal citations omitted).

III.Analysis.

A.Section 537.5114 and the ITT Financial Services Case.

Capital One's actions against Kelley and Denboer were brought by a creditor against a consumer arising from a consumercredit transaction.Thus, they are subject to the provisions of the Iowa Consumer Credit Code (ICCC).SeeMidwest Check Cashing, Inc. v. Richey,728 N.W.2d 396, 399(Iowa2007)(discussing that the ICCC applies to all consumer credit transactions in Iowa that are not specifically excluded under the statute).Section 537.5114 of the ICCC provides:

1.In an action brought by a creditor against a consumer arising from a consumer credit transaction, the complaint shall allege the facts of the consumer's default, the amount to which the creditor is entitled, and an indication of how that amount was determined.

2.No default judgment shall be entered in the action in favor of the creditor unless the complaint is verified by the creditor, or unless sworn testimony, by affidavit or otherwise, is adduced showing that the creditor is entitled to the relief demanded.

As noted, the small claims courts dismissed Capital One's cases against Kelley and Denboer for noncompliance with this section.

In interpreting statutes, we give words their ordinary meaning within the context of the provision at issue and interpret that provision consistent with the entire statute of which it is a part.Nash Finch Co. v. City Council,672 N.W.2d 822, 826(Iowa2003).In this case, we are guided in part by a navigation device-our court's prior decision in ITT Financial...