Jenkins v. Union Corp.

• Decision Date: 30 March 1998
• Docket Number: No. 96 C 3440.,96 C 3440.
• Citation: 999 F.Supp. 1120
• Parties: Javon JENKINS and David L. Terrafino, individually and on behalf of others similarly situated, Plaintiffs, v. UNION CORPORATION and Transworld Systems, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

999 F.Supp. 1120

Javon JENKINS and David L. Terrafino, individually and on behalf of others similarly situated, Plaintiffs, v. UNION CORPORATION and Transworld Systems, Inc., Defendants.

No. 96 C 3440.

United States District Court, N.D. Illinois, Eastern Division.

March 30, 1998.

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Cathleen M. Combs, Daniel A. Edelman, James O. Latturner, Tara Leigh Goodwin, Michelle Ann Weinberg, Edelman & Combs, Chicago, IL, for Javon Jenkins.

James S. Shedden, Mary Elizabeth Philipps, David J. Phillips, Catherine Lee Gemrich, Beeler, Schad & Diamond, P.C., Chicago, IL, for David L. Terrafino.

Ronald S. Adelman, Law Offices of Ronald S. Adelman, Chicago, IL, for Union Corporation, Transworld Systems, Inc.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

In this putative class action,¹ plaintiffs Javon Jenkins and David Terrafino allege that defendant Union Corporation and its subsidiary, Transworld Systems, Inc., violated numerous provisions of the Fair Debt Collection Practices Act ("FDCPA" or "Act") and the Illinois Collection Agency Act ("Illinois Act"). The three-count complaint stems from a series of form debt collection letters that the defendants sent on behalf of their creditor-clients.

The complaint claims that defendants violated the Act in four ways: 1) the letters contained false and deceptive language; 2) the letters overshadowed, contradicted, and obfuscated plaintiffs' rights to contest the validity of their debts; 3) the letters violated the FDCPA's proscription against threatening litigation that defendants had no intent or authority to bring;² and 4) the letters tried to collect service fees prohibited by both the FDCPA and the Illinois Act. The parties also contest whether defendant Union is sufficiently involved in debt collection activities to be held liable for the alleged statutory violations. Before the Court are the plaintiffs' motion for partial summary judgment on the FDCPA claims against defendant Transworld only, and defendants' cross-motion for summary judgment on all counts.

RELEVANT FACTS³

A. Union Corp. and Transworld Systems, Inc.

1. Union's Business

Defendant Union is a publicly held corporation whose principal place of business is in Greenwich, Connecticut. Def.'s Facts ¶ 5. Union describes itself as a "pure financial services company," with a 1996 net worth of approximately $63 million. Pl.'s Add'l Facts Ex. B (Union Annual Report at 2-3). Through its five operationally decentralized subsidiaries, Union provides telephone-based services, including accounts receivable management, customer service, billing inquiry, credit authorization, and pre-charge-off receivables. Id. At the time of the events in this suit, Union's "core business" was accounts receivable management. Id.

Union is not licensed as a collection agency, is not assigned accounts for collection, generates no collection letters, and makes no telephone calls to debtors. Def.'s Facts ¶ 8. Its corporate headquarters currently employs fewer than fifteen people, who are responsible for corporate strategy, policy and finance. Pl.'s Add'l Facts ¶¶ 6-7. Defendants describe Union's headquarters simply as the place where "they count the money." Dunn Dep. p. 30.

In 1985 Union purchased Transworld Systems Inc. from Gordon Dunn and others for $28 million. Def.'s Facts ¶ 9. Union and Transworld had no connection before the purchase. Dunn Dep. p. 17. Before 1985, Union owned a variety of enterprises, including an airline in Puerto Rico, a foundry, a military contractor, and another debt collection agency. Pl.'s Add'l Facts ¶ 1. The Transworld purchase was part of Union's plan to sell its unprofitable entities and focus on more profitable and growth-oriented businesses. Pl.'s Add'l Facts ¶ 2. Since purchasing Transworld, Union has not changed Transworld's policies and practices. Def.'s Facts ¶ 10.

2. Transworld's Business

Transworld Systems offers debt collection services from 139 offices nationwide, including Illinois, and has its principal place of business in Rohnert Park, California. Def.'s Facts ¶ 10. Transworld has a net worth in excess of $11 million, does not have any significant debt, and does not receive loans from Union. Def.'s Facts ¶¶ 6, 10. Transworld is Union's most profitable subsidiary and, at the time of the events in this case, was responsible for a large portion of Union's profits. Pl.'s Add'l Facts ¶ 5, Ex. B (Union Annual Report). Transworld distributes to Union an annual dividend that consists of all income beyond Transworld's immediate and long-range cash requirements—an amount Transworld determines on its own. Dunn Dep. p. 32-33.

3. The Companies' Corporate Structure

As a Union subsidiary, Transworld has one officer who sits on Union's board of directors. Def.'s Facts ¶ 9. Gordon Dunn, Transworld's former president and current chairman of the board, is that person. Id. His employment agreement is signed by both entities. Pl.'s Add'l Facts ¶ 6. Nicholas Gill, Union's vice president, treasurer and secretary, is also a director of Transworld. Dunn Dep. at 26. Besides Dunn and Gill, the companies do not have common directors or officers. Def.'s Facts ¶ 9. Transworld's current president, George Macaulay, does not do any consulting for Union or for any of Union's other subsidiaries or affiliates. Id. ¶ 9.

Transworld does not share its office facilities, postal meters, insurance policies or a computer system with Union or any of Union's other subsidiaries or affiliates. Id. Union maintains no offices or employees in California, Transworld's base, and it does not own or lease any of Transworld's offices. Transworld and Union maintain their own accounting departments and keep separate corporate minute books. Id. Transworld has, however, used Union's auditors. Id.

B. Transworld's Debt Collection Practices

Transworld provides debt collection services to more than 40,000 creditor-clients, both in its own name and under the name Credit Management Services. Pl.'s Facts ¶¶ 5-6. Creditor-clients initiate debt collection by filling out a "Start Service" transmittal slip—the only document needed to trigger collection efforts for a particular debtor—and mailing it to Transworld headquarters in California. Def.'s Facts ¶ 19. The pre-printed "Start Service" slip directs the creditor to provide the debtor's name, address, date of the latest payment or charge, and the total debt figure to be collected. Id. Ex 1. The form specifically instructs the client to "COMBINE ALL INTEREST, FINANCE CHARGES AND OTHER FEES TO WHICH YOU ARE LEGALLY ENTITLED. ONE TOTAL FIGURE." It also provides a space for the creditor-client to indicate whether the creditor wants "diplomatic" or "intensive" collection efforts, and whether the service should include collection of a "NSF check." Id. The Start Service slip does not designate a space for the creditor to indicate that the debt arose from a "stopped check." Id.

Transworld is aware that the law prohibits attempting to collect fees unauthorized by law or contract. Accordingly, Transworld's "installation packet," a manual given to clients, instructs clients to include in the amount sought the fees "legally due" to them. Pl.'s Facts ¶¶ 30-33. Transworld also relies on its creditors to state with accuracy the amounts legally due and owing from the debtor, the date the debt arose, and the debtor's last known address. Def.'s Facts ¶ 20. Transworld assumes that its clients add "service fees" to dishonored checks; these clients have the option of sending a pre-printed Transworld collection letter that states, "The amount due includes a service fee, which must also be paid." Pl.'s Facts ¶ 32. It is not Transworld's procedure or policy to compound the outstanding debt with a service charge when the debtor has stopped payment. Def.'s Facts ¶ 22. Nevertheless, Transworld does not specifically advise the creditor-client against collecting on checks stopped because of a debtor-merchant dispute. Pl.'s Facts ¶ 36. Transworld does instruct creditors that they may not attempt to collect from debtors who have filed for protection under bankruptcy laws. Id. ¶ 35.

If a creditor has a question about its legal entitlement to a particular charge, Transworld refers the creditor to its own attorney, and has issued memos instructing its sales representatives to do the same. Def.'s Facts ¶ 24. Transworld does not determine the propriety of creditors' additional fees or give any legal advice. Id. ¶ 20.

Transworld's efforts to collect debts from plaintiffs Jenkins and Terrafino surfaced in a series of standard form letters mailed to each approximately 14 days apart. None of the letters to Jenkins or Terrafino identifies or makes any reference to Union, or otherwise indicates any relationship between Transworld and Union. Def.'s Facts ¶ 25. Neither Jenkins nor Terrafino contacted Transworld to dispute their debts or to request validation of the total debt figures stated in their letters. Def.'s Facts ¶ 23.

C. Plaintiff Jenkins

In October 1995, Javon Jenkins bought a used car from Montell Pontiac in Blue Island, Illinois. She delivered a personal check for $1000, a portion of the purchase price. On October 17, 1995, Jenkins stopped payment on the check, claiming that the car was defective. Def.'s Facts ¶ 12; Pl.'s Facts ¶ 3. Montell Pontiac responded on October 23 by completing Transworld's "Start Service" form and authorizing collection efforts on Jenkins' debt. Def.'s Facts ¶ 14. Montell indicated on the form that $1,025 was legally due and owing from Jenkins, and requested "intensive" efforts to collect it. Montell also marked, erroneously, an "X" in the space for "NSF [dishonored] check," which added $25 to Jenkins' $1000 debt. Def.'s Facts ¶ 16, Ex. 1.

Using its own name, Transworld mailed Jenkins three "intensive" standard form collection letters dated November 1, 13 and 24, 1995, seeking the $1,025 that Montell Pontiac...