McAdory v. M.N.S. & Assocs., LLC

• Decision Date: 09 March 2020
• Docket Number: No. 18-35923,18-35923
• Citation: 952 F.3d 1089
• Parties: Jillian MCADORY, Plaintiff-Appellant, v. M.N.S. & ASSOCIATES, LLC, foreign limited liability company, Defendant, and DNF Associates, LLC, foreign limited liability company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

952 F.3d 1089

Jillian MCADORY, Plaintiff-Appellant,

v. M.N.S. & ASSOCIATES, LLC, foreign limited liability company, Defendant,andDNF Associates, LLC, foreign limited liability company, Defendant-Appellee.

No. 18-35923

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 24, 2019 Portland, Oregon

Filed March 9, 2020

CHRISTEN, Circuit Judge:

This appeal requires us to consider whether a business that buys and profits from consumer debts, but outsources direct collection activities, qualifies as a "debt collector" for purposes of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C § 1692 et seq. Plaintiff McAdory’s complaint alleged that DNF Associates, LLC qualified under the statute’s first definition: "any business the principal purpose of which is the collection of any debts." 15 U.S.C. § 1692a(6). The complaint did not allege that DNF interacted directly with consumers. The district court granted DNF’s motion to dismiss, concluding that the operative complaint failed to state a claim against DNF because debt buyers that do not directly interact with consumers to collect debts do not qualify as debt collectors.

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse the district court’s judgment. We join the Third Circuit in concluding that an entity that otherwise meets the "principal purpose" definition of debt collector cannot avoid liability under the FDCPA merely by hiring a third party to perform its debt collection activities. Barbato v. Greystone All., LLC , 916 F.3d 260, 261 (3d Cir.), cert. denied sub nom., Crown Asset Mgmt. LLC v. Barbato , ––– U.S. ––––, 140 S. Ct. 245, 205 L.Ed.2d 129 (2019).

I. Background

The operative complaint alleged that Jillian McAdory owed a debt to Kay Jewelers, and that DNF purchased the debt after McAdory stopped making timely payments. The complaint also alleged that McAdory first learned of DNF when she received a letter sent by First Choice Assets informing her that she owed a debt to DNF, and that McAdory took no action in response to the letter because she did not recognize DNF. McAdory averred that four months later, she received a voicemail message from an unidentified caller that referred to "asset verification" and an expedited "process for enforcement review." According to the complaint, McAdory returned the call and spoke with someone who identified himself as an MNS agent, implied that he was a lawyer, and indicated that McAdory would be sued for the unpaid debt. McAdory agreed to pay the debt during a subsequent telephone call with the same MNS agent. The agent emailed a document to McAdory that memorialized the agreement the same day. Finally, the complaint alleged that contrary to the terms of the parties’ agreement, MNS prematurely withdrew funds before an authorized payment date.

McAdory alleged that DNF and MNS committed eight separate violations of the FDCPA relating to MNS’s telephonic message and withdrawal of funds. The complaint alleged that DNF violated the FDCPA by using "false, deceptive, or misleading representation or means in connection with the collection of any debt," 15 U.S.C. § 1692e, and "unfair or unconscionable means to collect or attempt to collect any debt," id. § 1692f. The complaint did not allege that First Choice Assets violated the FDCPA or name First Choice as a defendant.

The operative complaint alleged that DNF is a debt collector because its principal purpose is "the collection of defaulted consumer debts that it purchases for pennies on the dollar," from which it "derives the vast majority of its income." It also alleged that DNF contracted with a network of other debt collectors that directly contacted consumers in DNF’s name and at its direction. According to the complaint, DNF set the "parameters of the terms and amounts of the payments made by the debtors." The complaint did not allege that DNF directly contacted McAdory about her debt. Instead, McAdory claimed that DNF was vicariously and jointly liable for MNS’s violations.

DNF moved to dismiss McAdory’s operative complaint, arguing that a debt buyer that outsources collection activities to third-party contractors does not meet the FDCPA’s definition of a "debt collector." The motion further argued that because DNF was not a debt collector, it could not be vicariously liable for MNS’s alleged FDCPA violations.

The district court granted DNF’s motion to dismiss, ruling that McAdory’s complaint failed to state a claim against DNF because "[d]ebt purchasing companies like DNF who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts." The court concluded there was little to suggest that Congress considered these companies when it drafted the FDCPA, and because the FDCPA’s substantive provisions govern interactions between consumers and debt collectors, the court reasoned that Congress intended the statute to apply only to those who directly interact with consumers.

The district court acknowledged that a debt purchasing company "may be a debt collector in the literal sense that it purchases debt for the purpose of making money by hiring a third party to collect on that debt." But the court reasoned that "[t]he fact that a business benefits from the collection of debt by an entirely separate third party does not necessarily make the principal purpose of that business the collection of those debts."

McAdory moved for leave to file a second amended complaint, seeking to add supplemental allegations that DNF filed collection lawsuits against consumers and was licensed as a debt collection agency in multiple states. The district court construed McAdory’s filing as a motion for reconsideration and denied it. The court also clarified that it had dismissed DNF from the lawsuit with prejudice.

McAdory obtained an entry of default against MNS, which had not responded to her complaint, and moved for entry of a separate final judgment as to DNF pursuant to Federal Rule of Civil Procedure 54(b). The district court granted the motion, and allowed McAdory to seek review of its order granting DNF’s motion to dismiss. The court observed that the issue was "a close one with courts around the country issuing conflicting decisions." McAdory timely appealed, and the parties agree that the question presented is whether a business must have direct interaction with consumers to qualify as a debt collector pursuant to the FDCPA.

II. Standard of Review

We review de novo the district court’s order granting a motion to dismiss for failure to state a claim. Syed v. M-I, LLC , 853 F.3d 492, 499 (9th Cir. 2017). We accept the complaint’s well-pleaded allegations as true and construe all inferences in the light most favorable to the nonmoving party. Schlegel v. Wells Fargo Bank, NA , 720 F.3d 1204, 1207 (9th Cir. 2013).

III. Discussion

In 1977, Congress enacted the FDCPA "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e). Concerned that unfair debt collection tactics contribute to personal bankruptcies, family instability, job loss, and privacy intrusions, id. § 1692(a), Congress imposed affirmative requirements on debt collectors and prohibited certain debt collection practices, Rotkiske v. Klemm , ––– U.S. ––––, 140 S. Ct. 355, 357, 205 L.Ed.2d 291 (2019). Because the statute is broadly remedial, we liberally construe the FDCPA in favor of consumers. See Hernandez v. Williams, Zinman & Parham PC , 829 F.3d 1068, 1078–79 (9th Cir. 2016).

The FDCPA applies to debt collectors, which the statute defines in two alternative ways: (1) "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts," or (2) "[any person] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."¹ 15 U.S.C. § 1692a(6) ; see also Schlegel , 720 F.3d at 1208. We refer to the first definition as the "principal purpose" prong (those engaged in "any business the principal purpose of which is the collection of any debts"), and we refer to the second definition as the "regularly collects" prong (those "who regularly collect[ ] ... debts owed or due another").

15 U.S.C. § 1692a. McAdory’s operative complaint alleged that DNF qualified as a debt collector under the principal purpose prong.

McAdory argues the district court erred by ruling that the FDCPA’s principal purpose prong—its first definition of "debt collector"—requires direct interaction with consumers. We begin by examining the plain meaning of the statutory text. See Jimenez v. Quarterman , 555 U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009) (observing that the plain language is the starting point of statutory construction); Seldovia Native Ass’n v. Lujan , 904 F.2d 1335, 1341 (9th Cir. 1990) (noting that courts determine plain meaning by looking to the language and design of the statute as a whole).

The parties agree that the FDCPA uses the phrase "principal purpose" to refer to a business’s most important goal or objective. See Barbato , 916 F.3d at 267. Determining a business’s principal purpose thus involves comparing and prioritizing its objectives, not analyzing the means employed to achieve them. Accordingly, the relevant question in assessing a business’s principal purpose is whether debt collection is incidental to the business’s objectives or whether it is the business’s dominant, or principal, objective. By contrast, the FDCPA’s second definition of "debt collector" depends upon a person’s regular activities —i.e., whether the person "regularly collects ... debts." 15 U.S.C. § 1692a(6).

The...