Ditty v. Checkrite, Ltd., Inc.

• Decision Date: 11 August 1997
• Docket Number: Civil No. 2:95-CV-430C.
• Citation: 973 F.Supp. 1320
• Parties: Rebecca H. and Bryan J. DITTY, et al., Plaintiffs, v. CHECKRITE, LTD., INC., et al., Defendants.
• Court: U.S. District Court — District of Utah

973 F.Supp. 1320

Rebecca H. and Bryan J. DITTY, et al., Plaintiffs, v. CHECKRITE, LTD., INC., et al., Defendants.

Civil No. 2:95-CV-430C.

United States District Court, D. Utah, Central Division.

August 11, 1997.

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Lester A. Perry, Kesler & Rust, Salt Lake City, UT, for Petitioners.

Daniel P. Shapiro, Goldberg, Kohn, Bell, Black, Roosenbloom & Moritz, Ltd., Chicago, IL, Mark O. Morris, Snell & Wilmer LLP, Salt Lake City, UT, Paul C. Droz, Blackburn & Stoll LC, Salt Lake City, UT, for Respondents.

AMENDED MEMORANDUM DECISION AND ORDER

CAMPBELL, District Judge.

This matter is before the court on the parties' cross-motions for summary judgment. A hearing on the parties' motions was held on April 29, 1997. Lester Perry appeared on behalf of plaintiffs, Mark Morris and Julie Thomas appeared on behalf of CheckRite,¹ and Paul Droz and Dori Petersen appeared on behalf of Richard H. DeLoney (sometimes "DeLoney") and DeLoney & Associates, L.L.C. ("DeLoney & Associates"). Having fully considered the arguments of counsel presented at the hearing, the memoranda and supporting materials submitted by the parties, and the applicable legal authorities, the court now enters this Memorandum Decision and Order.

I. BACKGROUND

Plaintiffs are individuals who wrote bad checks for retail purchases in amounts ranging from $2.85 to $46.68. These checks were referred by various merchants to CheckRite for collection. CheckRite sent two collection letters to plaintiffs and subsequently relinquished collection efforts to DeLoney & Associates, the law firm representing CheckRite. DeLoney & Associates sent a third letter, which informed each plaintiff that their dishonored check "ha[d] been referred by CheckRite to our law firm for litigation." The letter went on to state that the matter could be settled, out of court, for the sum of the face amount of the check, a $15.00 service charge, and an amount ranging from $73.00 to $83.00 listed as "Legal Consideration for Covenant not to Sue." The letter sent to the Dittys also warned of a potential civil action for the amount of the check and stated that other actions, "including fraud in the inducement, negligent misrepresentation, civil shoplifting, or theft by check may also be considered." This warning was not included in the letters sent to the other plaintiffs. In addition to providing check collection services, CheckRite maintains a nationwide check verification system that allows subscribers to access a database to determine whether a check writer has written bad checks in the past.

Richard DeLoney established DeLoney & Associates in September 1994. From the date of its formation until February or March of 1996, DeLoney & Associates was organized as a limited liability company under Utah law. In approximately March 1996, DeLoney & Associates reorganized as a Utah professional corporation.² Richard DeLoney has always been the firm's sole attorney. He authored the collection letters sent to the plaintiffs, trained the firm's collection agents, and determined the settlement amounts offered to plaintiffs. DeLoney & Associates collected dishonored checks for CheckRite in the states of Utah, Arizona, and Washington. CheckRite was the firm's largest client, generating one-third to one-half of the firm's income. Between July 1, 1994 and May 9, 1995, CheckRite referred to DeLoney & Associates approximately 9,025 dishonored checks written by Utah residents. During this period, DeLoney & Associates filed twenty-four lawsuits in connection with its collection work for CheckRite. This total included actions for fraud in the inducement, negligent misrepresentation, and civil shoplifting; however, none of the fraud, misrepresentation, or shoplifting actions were filed before DeLoney & Associates sent its March 6, 1995 collection letter to the Dittys.

DeLoney & Associates collected dishonored checks for CheckRite pursuant to an oral agreement negotiated by Richard DeLoney and Neil Auerbach, CheckRite's Senior Vice-President. Under the agreement, when DeLoney & Associates settled an account, CheckRite was to receive the face amount of the dishonored check plus $20.00; DeLoney & Associates was entitled to the remainder of the settlement proceeds.

CheckRite's Salt Lake City offices and DeLoney & Associates occupied space in the same office building. Accounts were referred by CheckRite to the firm electronically, and once the referral was made, DeLoney & Associates was able to access CheckRite's computer system to review account information. Upon receiving an account referral, DeLoney & Associates' computer system automatically generated a collection letter addressed to the writer of the dishonored check.

Plaintiffs'³ Third Amended Complaint asserts claims under the Fair Debt Collection Practices Act ("FDCPA" or "Act"), 15 U.S.C. §§ 1692-1692o (1982 & Supp.1997), claims under the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681-1681u (1982 & Supp.1997), and various state law causes of action⁴ against CheckRite, DeLoney & Associates, and Richard H. DeLoney.⁵ Plaintiffs previously sought summary judgment against CheckRite, DeLoney & Associates, and Richard DeLoney; the latter two defendants previously moved to dismiss plaintiffs' initial complaint. These prior motions presented some of the issues now raised by the pending motions. On January 25, 1996, the court denied the prior motions on the ground that the record did not permit a legal finding that collection of dishonored checks falls outside the coverage of the FDCPA. Order, January 25, 1996 (Docket No. 76).

II. STANDARD OF REVIEW

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court must construe all facts and reasonable inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986): Pueblo of Santa Ana v. Kelly, 104 F.3d 1546, 1552 (10th Cir.1997). The fact that the parties have filed cross-motions for summary judgment does not affect the applicable standard. Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir.1993).

Once the moving party has carried its burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by ... affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (quoting Fed. R.Civ.P. 56(e)). The non-moving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. at 2552. The mere existence of a scintilla of evidence in support of the non-moving party's case is insufficient; there must be evidence on which the jury could reasonably find for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).

III. DISCUSSION

The following issues are raised by the pending motions: (1) the scope of the FDCPA, that is, whether the obligation created by a dishonored check is a "debt" as defined by the Act; (2) if the Act does apply, whether defendants' conduct violated it; (3) whether defendants violated the FCRA; (4) whether CheckRite may be held liable for the actions of its attorney; (5) whether Richard DeLoney may be held personally liable for the collection activities of DeLoney & Associates; (6) whether plaintiffs are entitled to injunctive relief; and (7) whether the FDCPA claims of plaintiffs Crandall and Robison are cognizable under the Act.

A. Scope of the FDCPA

The FDCPA prohibits a debt collector from using certain abusive practices to collect a "debt;" therefore, the Act's scope is necessarily limited by its definition of this term. The Act defines a "debt" as:

any obligation or alleged obligation 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 whether or not such obligation has been reduced to judgment.

15 U.S.C. § 1692a(5). Defendants maintain that the Act is not implicated here because a dishonored check does not involve an offer or extension of credit, a condition defendants argue must be read into the definition of "debt."

Three circuits have addressed the breadth of the FDCPA's definition of "debt:" the Third Circuit in Zimmerman v. HBO Affiliate Group, 834 F.2d 1163 (3d Cir.1987), the Seventh Circuit in Bass v. Stolper, Koritzinsky, Brewster & Neider, 111 F.3d 1322 (7th Cir.1997), and the Ninth Circuit in Charles v. Lundgren & Assocs., P.C., 119 F.3d 739 (9th Cir.1997). In Zimmerman, the defendant cable television companies demanded that plaintiffs pay for allegedly pirated microwave television signals. Plaintiffs sued, arguing, inter alia, that the defendants' collection methods ran afoul of the FDCPA. Affirming the district court's dismissal of plaintiffs' FDCPA claims, the Third Circuit first determined that the term "transaction" in the Act's definition of "debt" did not include asserted tort liability, but rather included only contractual or consensual consumer exchanges. Zimmerman, 834 F.2d at 1168. Pirating cable television signals, reasoned the court, did not constitute such an exchange. Id. The court then added, without discussion or analysis, that a "debt" under the FDCPA arises from "the same type of transaction as is dealt with in all other subchapters of the Consumer...