Kort v. Diversified Collection Services, Inc., 01 C 0689.

• Decision Date: 08 July 2003
• Docket Number: No. 01 C 0689.,01 C 0689.
• Citation: 270 F.Supp.2d 1017
• Parties: Elizabeth KORT, individually, and on behalf of all other similarly situated, Plaintiff, v. DIVERSIFIED COLLECTION SERVICES, INC., a California corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

270 F.Supp.2d 1017

Elizabeth KORT, individually, and on behalf of all other similarly situated, Plaintiff, v. DIVERSIFIED COLLECTION SERVICES, INC., a California corporation, Defendant.

No. 01 C 0689.

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

July 8, 2003.

COPYRIGHT MATERIAL OMITTED

James S. Shedden, Michael S. Hilicki, Beeler, Schad & Diamond, P.C., Chicago, IL, Christopher V. Langone, Langone Law Firm, Chicago, IL, Lance A. Raphael, Stacy Michelle Bardo, Chicago, IL, for Elizabeth Kort, individually and on behalf of all others similarly situated.

David Matthew Schultz, Peter E. Pederson, Jr., Hinshaw & Culbertson, Chicago, IL, for Diversified Collection Services, Inc, a California corporation.

MEMORANDUM OPINION AND ORDER

GETTLEMAN, District Judge.

In her class action complaint,¹ plaintiff Elizabeth Kort, individually and on behalf of all others similarly situated, alleges that Diversified Collection Services, Inc. ("DCS"), a California corporation, violated the Fair Debt Collection Practices Act, ("FDCPA"), 15 U.S.C. §§ 1692 et seq. In Count I, plaintiff alleges that DCS's "Notice Prior to Wage Withholding" letter violated the FDCPA by misstating the date by which plaintiff must enter into a repayment plan or pay off the loan to avoid administrative wage garnishment under the Higher Education Act, ("HEA"), 20 U.S.C. §§ 1071 et seq. In Count II, plaintiff alleges that DCS's letter violated the FDCPA by misstating the action a debtor must take under the HEA to claim an exemption from administrative wage garnishment for individuals who have been involuntarily separated from employment during the preceding twelve months. Plaintiff seeks declaratory relief, statutory damages, costs and reasonable attorneys' fees on both Counts. The court has certified a class as to each count. The parties have filed cross-motions for summary judgment under Fed.R.Civ.P. 56. For the reasons stated below, summary judgment is granted to plaintiff on Count I and to defendant on Count II.

FACTS²

Defendant is a collection agency that collects delinquent student loans for various creditors. Defendant's operations include a student loan department that engages in a full range of collection services on behalf of defendant's clients, including telephone contact with borrowers to negotiate repayment arrangements and recommending to clients that accounts be put into administrative wage garnishment. When a client, either at defendant's suggestion or on its own initiative, requests that a defaulting borrower be subjected to wage garnishment, defendant's administrative wage garnishment department prints and mails a 30 day notice to the defaulting borrower indicating that garnishment will occur unless specified actions are taken.

On February 5, 2000, defendant printed a letter addressed to plaintiff entitled, "NOTICE PRIOR TO WAGE WITH-HOLDING," to collect a loan to plaintiff by defendant's client, the Illinois Student Assistance Commission ("ISAC"). The envelope containing the letter is postmarked February 7, 2000. The relevant portion of the letter read as follows:

You are given notice that Illinois Student Assistance Commission, pursuant to Federal Law (Publie Law 102-164; 20 U.S.C. § 1095a et seq.), will order your employer to immediately withhold money from your pay (a process known as "wage garnishment") for payment of your defaulted student loan(s), unless you take the action set forth in this Notice.

* * * * * *

You must establish a written repayment agreement with Diversified Collection Services (DCS) on or before March 6, 2000; otherwise, Illinois Student Assistance Commission will proceed to collect this debt through deductions from your pay. Unless you act by March 6, 2000, your employer will be ordered to deduct from your pay an amount equal to no more than 10% of your "disposable pay" for each pay period, or the amount permitted by 15 U.S.C. 1673 (unless you give Illinois Student Assistance Commission written consent to deduct a greater amount) to repay your student loan(s) held by your guarantor....

The letter then states that plaintiff has the opportunity to avoid wage garnishment by "immediately remitting the balance in full or by entering into a written repayment agreement with DCS to establish a satisfactory schedule for the repayment" of the debt. It informs plaintiff that she has a right to object to the garnishment and has an opportunity to request a hearing on her objection. The letter further explains a borrower's right to an exemption if the borrower has been involuntarily separated from employment:

If you document that you have been involuntarily separated from employment, Illinois Student Assistance Commission will not garnish your wages until you have been re-employed continuously for twelve (12) months. If you wish to claim this exemption from wage garnishment, you will need to complete Part II of the enclosed Request for Hearing form and send us written proof that you qualify for the exemption by March 6, 2000. Satisfactory "written proof is the following: documents from the applicable Employment Commission (or a similar agency in another state) indicating your entitlement to unemployment compensation, and a statement from your present employer indicating the date you began work at your present job. If you are not covered under a state's unemployment program (even if involuntarily separated from employment), you must provide a statement to that effect from the state unemployment agency. Failure to provide written proof may result in your claim of exemption being rejected as unsubstantiated. (Emphasis in original).

A form entitled "REQUEST FOR HEARING" is attached to the letter. Part I of the form allows the borrower to choose a written, in person, or telephonic hearing. Part II is entitled, "REASONS WHY YOU OBJECT TO GARNISHMENT" and states:

Check one or more reasons that apply. Explain any further facts concerning your objection(s) on a separate sheet of paper. You have the burden of proving any claims raised by your objection(s). The hearing on your objection(s) will be conducted based on the information on this form, any documentation you provide, and the documentation maintained by Illinois Student Assistance Commission. Please note that failure to provide written proof of your objection(s) may result in a hearing official issuing a decision to deny your objection as unsubstantiated.

The first choice provided contains a box that may be checked and states, "I was involuntarily separated from employment and have not been re-employed continuously for twelve (12) months." It continues:

If you are covered under a state's unemployment program, you must submit this form along with documents from your state Employment Commission [or a similar agency in another state] indicating your entitlement to unemployment compensation, and a statement from your present employer indicating the date you began work at your present job. If you are not covered under a state's unemployment program (even if involuntarily separated from employment), you must provide a statement to that effect from the state unemployment agency. Please note that failure to provide written proof may result in a decision by the hearing official to deny your objection.

Below this statement, the borrower is provided with a space to indicate his or her previous and present employers' names, addresses and telephone numbers and the date of separation and hire. The letter is identical to a form notice of administrative wage garnishment drafted in 1998 by the U.S. Department of Education ("DOE"). The DOE requires student loan guaranty agencies to use this form when seeking to garnish the wages of borrowers who have defaulted on a guaranteed student loan under the HEA's Federal Family Education Loan Program. Only the name of the borrower, guaranty agency and the dates vary with each instance of the form mailed. In the instant case, ISAC provided this form to DCS, which used it in its mailings to plaintiff and class members. Although the form letter is intended to give its recipient thirty days' notice of garnishment, both plaintiff and members of the sub-class referred to in Count I were mailed letters postmarked less than thirty days before the date garnishment might begin as indicated in the letter.

Plaintiff claims that the letter violates § 1692e and § 1692e(5) of the FDCPA. Specifically, plaintiff asserts that the letter threatens to garnish plaintiffs wages sooner than defendant is legally entitled to do so, and misrepresents the date by which she must act to avoid wage garnishment. In Count II, plaintiff claims that the portion of the letter discussing the criteria for possible exemption from wage garnishment violates § 1692e because it requires plaintiff to document or provide written proof of her eligibility for an exemption by a specific deadline although she is not required to do so. Plaintiff contends that because of the violations of the FDCPA, she is entitled to statutory damages, costs, and reasonable attorneys' fees as provided by 15 U.S.C. § 1692k(a).

Defendant asserts that the provisions of the HEA and the FDCPA are in conflict and cannot be harmonized. As the more specific statute, HEA controls and, therefore, loan servicers under the HEA are not statutory debt collectors under § 1692a of the FDCPA. Defendant also argues that as a company that merely prints, addresses and mails a collection letter authored by its client, it is not a statutory debt collector for FDCPA purposes. Defendant next asserts that the letter, whether mailed on the day printed or not, does not misstate plaintiffs and class members' rights under the FDCPA because, (1) the date by which the letter's recipient must act is not necessarily the date on which garnishment would begin, and (2) the proof requirement for the unemployment exemption in the letter cannot violate the HEA because it was authored by the DOE, which in doing so...