Randolph v. Imbs, Inc.

• Decision Date: 12 May 2004
• Docket Number: No. 03-2185.,No. 03-1594.,No. 03-3182.,No. 03-2340.,03-1594.,03-2185.,03-2340.,03-3182.
• Citation: 368 F.3d 726
• Parties: Jeanette RANDOLPH, Plaintiff-Appellant, v. IMBS, INC., Defendant-Appellee. Cheryl Alexander, Plaintiff-Appellee, Cross-Appellant, v. Unlimited Progress Corp., Defendant-Appellant, Cross-Appellee. Jennifer J. Cross, Plaintiff-Appellant, v. Risk Management Alternatives, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

368 F.3d 726

Jeanette RANDOLPH, Plaintiff-Appellant, v. IMBS, INC., Defendant-Appellee.

Cheryl Alexander, Plaintiff-Appellee, Cross-Appellant, v. Unlimited Progress Corp., Defendant-Appellant, Cross-Appellee.

Jennifer J. Cross, Plaintiff-Appellant, v. Risk Management Alternatives, Inc., Defendant-Appellee.

No. 03-1594.

No. 03-2185.

No. 03-2340.

No. 03-3182.

United States Court of Appeals, Seventh Circuit.

Argued February 11, 2004.

Decided May 12, 2004.

David J. Philipps (argued), Gomolinski & Philipps, Hickory Hills, IL, for Plaintiff-Appellant.

Christine L. Olson (argued), Hinshaw & Culbertson, Chicago, IL, for Defendant-Appellee.

Before EASTERBROOK, KANNE, and WILLIAMS, Circuit Judges.

EASTERBROOK, Circuit Judge.

A demand for immediate payment while a debtor is in bankruptcy (or after the debt's discharge) is "false" in the sense that it asserts that money is due, although, because of the automatic stay (11 U.S.C. § 362) or the discharge injunction (11 U.S.C. § 524), it is not. A debt collector's false statement is presumptively wrongful under the Fair Debt Collection Practices Act, see 15 U.S.C. § 1692e(2)(A), even if the speaker is ignorant of the truth; but a debt collector that exercises care to avoid making false statements has a defense under § 1692k(c). Two recent decisions of this circuit arising out of postbankruptcy demands for immediate payment illustrate how these provisions of the FDCPA work. Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991 (7th Cir.2003); Hyman v. Tate, 362 F.3d 965 (7th Cir.2004).

A debtor dunned after filing for bankruptcy has another potential remedy: ask the bankruptcy judge to hold the other party in contempt of either the automatic stay or the discharge injunction. This option is available against both creditors and debt collectors, but only if the violation is "willful". See § 362(h); cf. § 524(a)(2). Willfulness entails actual knowledge that a bankruptcy is under way or has ended in a discharge. If a willful violation can be shown, both actual and punitive damages are available, while violations of the FDCPA generally lead to small penalties and never to punitive damages. In these three cases, which we have consolidated on appeal, the district courts held that remedies under the Bankruptcy Code are the only recourse against post-bankruptcy debt-collection efforts — that the Code trumps the FDCPA when they deal with the same subject, even when the two statutes are consistent. On this view, negligent attempts to collect from debtors during or after bankruptcy cannot yield liability. That position has the support of one circuit, see Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510-11 (9th Cir.2002), but accepting it would change the outcome of Turner and Hyman. Although those two decisions did not consider the effect of the Bankruptcy Code on the FDCPA, they did apply the FDCPA to situations fundamentally the same as those of the three cases now before us.

These suits are similar in material respects, so we use one as an illustration. When Cheryl Alexander filed a petition under Chapter 13 of the Bankruptcy Code, she owed $1,125 to her dentist, Joseph V. Kannankeril. She listed this debt on the schedule of unsecured, nonpriority claims. Kannankeril was notified of the filing and the identity of Alexander's lawyer. He filed a timely proof of claim, and the confirmed plan listed this debt as one to be paid in part over time. Payments under a Chapter 13 plan can last for years. About two years after Alexander's plan was confirmed, Dr. Kannankeril died; his office hired Unlimited Progress, Inc., to collect old accounts, including Alexander's. We must assume, given the posture of the litigation, that whoever was managing Dr. Kannankeril's estate furnished Unlimited Progress with the bills but not with any of the documents concerning her bankruptcy. Unlimited Progress sent a dunning letter, which Alexander ignored; it followed up with another that she relayed to her attorney. He informed the debt collector about the Chapter 13 proceedings; Unlimited Progress immediately closed its file and has never again contacted Alexander. Suit under the FDCPA followed, and Alexander made two claims: first, that Unlimited Progress had falsely represented that she was required to pay Kannankeril's bill immediately; second, that Unlimited Progress had violated the FDCPA by writing directly to her, even though she was represented by counsel.

The parties consented to decision by a magistrate judge, see 28 U.S.C. § 636(c), who concluded that the Bankruptcy Code "preempts" the FDCPA when the act alleged to transgress the FDCPA also violates the Code. See Alexander v. Unlimited Progress Corp., 2003 WL 1562234, 2003 U.S. Dist. LEXIS 5560 (N.D.Ill. Mar. 24, 2003). Because § 362(h) of the Code condemns only willful debt-collection attempts, while the FDCPA uses a strict-liability approach (with a due-care defense), the court deemed them incompatible. The magistrate judge relied principally on Cox v. Zale, 239 F.3d 910 (7th Cir.2001), which holds that the Bankruptcy Code occupies the field, to the exclusion of state common and statute law bearing on debt adjustment after a federal bankruptcy proceeding has been commenced, though he also cited Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974). Sending the letter to the debtor rather than to counsel does not independently violate the Bankruptcy Code, however, and the magistrate judge ordered Unlimited Progress to pay Alexander $1,000 for what he held to be a violation of 15 U.S.C. § 1692c(a)(2). In the other two suits the district judge held that the Code supplies the exclusive remedy for any debtor in bankruptcy and applied this understanding to knock out claims under § 1692c(a)(2), § 1692e(2)(A), and § 1692f (which forbids harassing or unconscionable collection tactics). See Cross v. Risk Management Alternatives, Inc., 296 B.R. 758 (N.D.Ill.2003); Randolph v. IMBS, Inc., 288 B.R. 524 (N.D.Ill.2003).

We start with the notice-to-counsel theory, because the difference between § 1692c(a)(2) and § 1692k(c) may help us understand the relation between the Bankruptcy Code and § 1692e(2)(A). Section 1692c(a) says that "a debt collector may not communicate with a consumer in connection with the collection of any debt ... (2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address". Unlimited Progress did not know that Alexander was represented by an attorney, any more than it knew that she had a confirmed Chapter 13 plan. The district court thought this irrelevant, because the information must have been in Dr. Kannankeril's files. Yet the statute asks what the debt collector knows, not what the creditor knows.

A distinction between creditors and debt collectors is fundamental to the FDCPA, which does not regulate creditors' activities at all. Courts do not impute to debt collectors other information that may be in creditors' files — for example, that debt has been paid or was bogus to start with. This is why debt collectors send out notices informing debtors of their entitlement to require verification and to contest claims. 15 U.S.C. § 1692g. Verification would be unnecessary if debt collectors were charged with the creditors' knowledge. The due-care defense of § 1692k(c) also would be pointless if creditors' knowledge were imputed to debt collectors. Why inquire whether the debt collector took appropriate precautions to learn something it is bound to know from the outset? Alexander does not cite, and we have not found, any appellate opinion imputing creditors' knowledge to debt collectors. Knowledge may be imputed to agents, but debt collectors are independent contractors; an agent or employee of the creditor is not covered by the Act in the first place. See 15 U.S.C. § 1692a(6)(a). So the information in Dr. Kannankeril's files about Alexander's bankruptcy (and the fact that she had counsel) is not "knowledge" from the perspective of Unlimited Progress unless it was furnished to that debt collector, and as Alexander does not contend that this occurred there can be no liability under § 1692c(a)(2).

Although § 1692c(a)(2), like § 362(h) of the Bankruptcy Code, makes liability depend on the actor's knowledge, § 1692e(2)(A) creates a strict-liability rule. Debt collectors may not make false claims, period. See Turner, 330 F.3d at 995, and its predecessors, such as Gearing v. Check Brokerage Corp., 233 F.3d 469, 472 (7th Cir.2000), and Russell v. Equifax A.R.S., 74 F.3d 30, 33 (2d Cir.1996). In lieu of a scienter requirement, the FDCPA provides a defense "if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. § 1692k(c). This is the basis of the district court's conclusion that liability under § 1692e(2)(A) would interfere with the administration of bankruptcy law — Congress specified a scienter rule for proceedings under § 362(h), yet the FDCPA allows liability without proof of a mental state.

The district court wrote that § 362(h) "preempts" § 1692e(2)(A), but this cannot be right. One federal statute does not preempt another. See Baker v. IBP, Inc., 357 F.3d 685, 688 (7th Cir.2004). When two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other — and repeal by implication is a rare bird indeed. See, e.g., Branch v. Smith, 538 U.S. 254, 273, 123 S.Ct. 1429, 155 L.Ed.2d 407 (2003); J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred International, Inc., 534 U.S. 124, 141-44, 122 S.Ct. 593, 151 L.Ed.2d 508 (2001) (collecting authority). It takes either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the...