Muha v. Encore Receivable Management, Inc.

Decision Date10 March 2009
Docket NumberNo. 07-3581.,07-3581.
Citation558 F.3d 623
PartiesCharlotte V. MUHA and Mary Cajski, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. ENCORE RECEIVABLE MANAGEMENT, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

John D. Blythin (argued), Corey M. Mather, Ademi & O'Reilly, Cudahy, WI, for Plaintiffs-Appellants.

David M. Schultz (argued), Hinshaw & Culbertson, Chicago, IL, for Defendant-Appellee.

Before POSNER, KANNE, and TINDER, Circuit Judges.

POSNER, Circuit Judge.

The Fair Debt Collection Practices Act, so far as relates to this case, forbids a debt collector (which the defendant is) to "use any false, deceptive, or misleading representation ... in connection with the collection of any debt." 15 U.S.C. § 1692e. The defendant sent a dunning letter to credit card debtors, including the plaintiffs and the 7,000 or so other members of the class that the plaintiffs represent, which states (with irrelevant boilerplate language omitted):

The above referenced account has been referred to our office for collection of the balance in full. Previous attempts have been made by our client to resolve this debt voluntarily. As of this date, those attempts have not been successful. Therefore, your original agreement with the above mentioned creditor has been revoked.

Encore Receivable Management, Inc. [the defendant debt collector] has been authorized by our client to provide the necessary effort to collect this debt. We recommend that you take advantage of this opportunity to pay the balance in full to prevent further collection activity.

* * *

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice, this office will: obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification.

The plaintiffs allege that the sentence that we have italicized in the first paragraph of the letter is false, and they sought to bolster this allegation with deposition testimony that specific provisions of the credit-card contract were still in effect, in which event the agreement itself had not been "revoked." Certainly the payment requirements of the contract were still in effect—they were the basis of the attempt to collect a "debt" due to the issuer. The plaintiffs argue that this false statement was misleading and confusing, a claim they attempted to support with a consumer survey. The district judge excluded the survey and went on to rule that the challenged sentence is true because it clearly means only that the debtors' credit-card privileges have been revoked; and so he granted summary judgment for the defendant.

The judge was right to exclude the survey. Although the plaintiffs hired a competent survey researcher to conduct it, the questions he asked in the survey were drafted not by him but by the plaintiffs' lawyer. That has turned out to be a mistake. A consumer survey, to be sufficiently objective to be usable as evidence in a suit under the Fair Debt Collection Practices Act, depends among other things on "whether the questions are leading or suggestive." American Home Products Corp. v. Johnson & Johnson, 654 F.Supp. 568, 590 (S.D.N.Y.1987); see also Johnson & Johnson * Merck Consumer Pharmaceuticals Co. v. Smithkline Beecham Corp., 960 F.2d 294, 299-300 (2d Cir.1992); Pittsburgh Press Club v. United States, 579 F.2d 751, 759 (3d Cir.1978); Weight Watchers Int'l, Inc. v. Stouffer Corp., 744 F.Supp. 1259, 1272 (S.D.N.Y.1990); Bruce P. Keller, "A Survey of Survey Evidence," in The Litigation Manual 770 (John G. Koeltl & John S. Kiernan eds.1999); 6 Business and Commercial Litigation in Federal Courts § 75:55, p. 1027 (Robert L. Haig ed., 2d ed.2005). That the questions were drafted by the plaintiffs' lawyer was apt to make them leading, and did.

The key question—the meaning of "your original agreement with the above mentioned creditor has been revoked"—was rephrased as follows, with a choice of possible answers:

If a debt collector sent you a letter stating that your agreement with the original creditor has been revoked, what do you feel this statement means?

• There is no longer a contract between the original creditor and me.

• I must pay the debt immediately.

• I do not have to pay the debt because the creditor revoked the agreement.

• I am unsure as to what this means.

• Other.

The survey respondents should have been read (it was a telephone survey) the actual wording of the letter. And the suggested answers omitted the defendant's reading, adopted by the judge—that the recipient's credit-card privileges have been revoked. We add parenthetically that a telephone survey is not an ideal method of testing the understanding of a written statement, since inflection can alter meaning and some written statements are easier to understand when read than when heard.

The plaintiffs argue that only a lawyer could draft the survey questions because a survey researcher would not be familiar with the Fair Debt Collection Practices Act. That is not correct. The questions designed to elicit a consumer's understanding of the meaning of the passage that we quoted do not require any knowledge of the Act. If they did, the proper response would be for the lawyer to explain the relevant law to the survey researcher.

There is more that is wrong with the survey. There was no control group—no group of survey respondents shown a wording of the dunning letter that the plaintiffs agreed would not be confusing or that simply omitted the challenged sentence. As we explained in Johnson v. Revenue Management Corp., 169 F.3d 1057, 1060 (7th Cir.1999) (emphasis added), the plaintiff has "to show that the additional language of the letters unacceptably increases the level of confusion; many unsophisticated consumers would be confused even if the letters they received contained nothing more than a statement of the debt and the statutory notice." Cf. Phyllis J. Welter, Trademark Surveys § 24.03[1][b], pp. 24-28.2 to 28.3 (1998).

The defendant, it is true, makes an unsound objection to the survey—that instead of targeting unsophisticated consumers it surveyed a random sample of consumers. The average consumer is more sophisticated than the unsophisticated consumer because the average is the average of a group that contains sophisticated consumers as well. Yet the law is primarily intended to protect the unsophisticated consumer, e.g., Taylor v. Cavalry Investment, L.L.C., 365 F.3d 572, 574 (7th Cir.2004); Russell v. Equifax A.R.S., 74 F.3d 30, 34 (2d Cir.1996), since the sophisticated one can usually fend for him-self (that is what "sophistication" means in this context). So a better survey would include questions designed to filter out the sophisticated. But that is of no consequence in this case; a defendant can only be helped by a survey that includes responses from the sophisticated.

The plaintiffs' lawyer made a damaging admission at oral argument, but we will not hold him to it. He said that without the survey he could not prove that his clients are entitled to a positive amount of statutory damages (he was not seeking actual damages). Not so.

In a suit under the Act other than a class action, the amount of damages is "such ... damages as the court may allow," 15 U.S.C. § 1692k(a)(2)(A), while in a class action, which this case is, the class itself (which the judge certified) is additionally entitled to an amount of damages "not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector," § 1692k(a)(2)(B), plus attorneys' fees, § 1692k(a)(3). The Act directs the judge, in computing damages, to

consider, among other relevant factors—

(1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or

(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional.

§ 1692k(b). With the possible exception of "the nature of such noncompliance," insofar as it refers to the gravity of the violation, see Graziano v. Harrison, 950 F.2d 107, 114 (3d Cir.1991), or its blatancy, Crossley v. Lieberman, 868 F.2d 566, 572-73 (3d Cir.1989); cf. Pipiles v. Credit Bureau of Lockport, Inc., 886 F.2d 22, 28 (2d Cir.1989)—though we are unclear what as a practical matter these inquiries would add to a determination of the "frequency and persistence" of the unlawful activity—the factors listed in the statute are independent of what a consumer survey would show.

Not wanting their appeal to depend on the admissibility of the survey, the plaintiffs argue that if a statement in a dunning letter is false, the district judge need not find that it would not mislead anyone, and that the statement that the debtor's agreement with the issuer of the creditor has been "revoked" is false. Even if we accept the premise, the conclusion would not follow. If the average unsophisticated consumer would not be influenced by a statement rightly or wrongly claimed to be literally false, the case should end right there. Hahn v. Triumph Partnerships LLC, 2009 WL 529562 (7th Cir. Mar 4, 2009); Wahl v. Midland Credit Management, Inc., 556 F.3d 643 (7th Cir.2009). As we explained in Wahl, at 644-46, the plaintiff "says she is not arguing that the collection letters were `misleading' or `deceptive,' but only that they were `false,' and that the statute creates an important...

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