Seeger v. Afni, Inc.

• Decision Date: 08 December 2008
• Docket Number: No. 07-4083.,07-4083.
• Citation: 548 F.3d 1107
• Parties: Marvin SEEGER, Bradley Gamroth, Robert McClain, and Joanne Blarek, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. AFNI, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

548 F.3d 1107

Marvin SEEGER, Bradley Gamroth, Robert McClain, and Joanne Blarek, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. AFNI, INC., Defendant-Appellant.

No. 07-4083.

United States Court of Appeals, Seventh Circuit.

Argued September 9, 2008.

Decided December 8, 2008.

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

Christine Olson McTigue, Hinshaw & Culbertson, Chicago, IL, David J. Hanus (argued), Hinshaw & Culbertson, Milwaukee, WI, for Defendant-Appellant.

Before BAUER, CUDAHY, and WOOD, Circuit Judges.

WOOD, Circuit Judge.

This case involves the legality of the methods that AFNI, Inc., uses when it undertakes collection efforts—in this instance, on behalf of Cingular Wireless. (After the events in this case, Cingular was acquired by AT & T; for the sake of consistency with the district court's opinion, we refer to it here by its former name.) The district court certified a class of customers in the state of Wisconsin who had received a collection letter during a specified time. The class took the position that AFNI's practices violated both Wisconsin law and the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq. On cross-motions for summary judgment, the district court ruled that AFNI had not violated Wis. Stat. § 422.202 when it imposed its collection fee, because the cell phone contract was not a "consumer credit transaction." The court also ruled, however, that the plaintiff class was entitled to summary judgment on its claims under the FDCPA and Wis. Stat. § 427.104(1)(j), because neither AFNI's contracts with its customers nor Wisconsin law authorized it to charge the type of collection fee it was using. Plaintiffs were willing to let well enough alone with respect to their defeat on the § 422.202 theory, but AFNI has appealed the judgment in favor of the class. Although we can imagine hypothetical facts under which AFNI would be entitled to prevail, AFNI did not present such a record to the district court. We therefore affirm.

I

Marvin Seeger, Bradley Gamroth, Robert McClain, and Joanne Blarek each entered into an agreement with the former Cingular Wireless, Ameritech Mobile Communications, or Worldcom, for cellular telephone service. Seeger's contract was with Cingular; it was a monthly plan that included 800 "anytime" minutes and imposed extra charges for additional time used. The other three named plaintiffs had similar plans with their carriers. At some point, each one fell behind in his or her payments.

AFNI is a debt collection company that purchases accounts from some of its customers. The original contracts between each plaintiff and the cellular telephone provider contained language addressing the possible use of a collection agency. Some Cingular contracts had this to say:

You agree to pay to CINGULAR the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys' fees and court costs, incurred by CINGULAR in exercising any of its rights and remedies when enforcing any provisions of this Agreement.

Other Cingular contracts said only that "[y]ou agree to reimburse us the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys' fees, we incur in such collection efforts." The contracts also contained various provisions making it clear that failure to pay was cause for termination of the contract and that an early termination fee or cancellation fee would be imposed.

Between September 2004 and June 2005, AFNI sent debt collection letters to Seeger, Gamroth, and McClain, informing each one that he owed a debt and that Cingular was the original creditor. (The parties dispute whether Blarek received that first letter.) AFNI's letter stated that the recipient was responsible for paying AFNI a collection fee of 15% of the "original balance." Some time later, McClain and Blarek received another form letter from AFNI; the second letter included the collection fee in the balance due. In keeping with its normal practice, Cingular had sold these accounts to AFNI. As part of the transfer, Cingular furnished account information to AFNI on a CD-ROM, and the information on the CD was then uploaded to AFNI's system. The information transmitted by Cingular said nothing about any collection fees that AFNI might or might not charge.

On July 7, 2005, Seeger and Gamroth filed a complaint against AFNI, alleging that its attempt to include a separate collection fee in the amount due violated the FDCPA. On November 29, 2005, they filed an amended complaint that both added McClain and Blarek as plaintiffs and included charges under the Wisconsin Consumer Act, Wis. Stat. §§ 421-425. Six months later, the plaintiffs moved for class certification. The district court (acting through a magistrate judge, by consent of the parties) granted their motion and defined the class as follows:

(a) All natural persons in the State of Wisconsin (b) who were sent a collection letter by AFNI claiming a collection fee (c) for Cingular telephone service or service of another cellular provider transferred to Cingular, (d) obtained for personal, family or household purposes, (e) which originally included a contract for a minimum term of service of one or more years, and "early cancellation fee" of any amount, (f) on or after July 7, 2004, (g) that was not returned by the postal service.

As noted above, the district court later granted summary judgment in the class's favor, ruling that AFNI's actions violated the FDCPA because neither the contracts nor Wisconsin law permitted the owner of a debt to impose a separate fee for collection, if the fee was for the purpose of reimbursing the owner itself as opposed to a third-party debt collector. This also meant, the district court concluded, that AFNI had violated the Wisconsin Consumer Act's provision prohibiting a debt collector from trying to enforce a right it knows or has reason to know does not exist. See Wis. Stat. § 427.104(1)(j). AFNI now challenges those rulings on appeal. We review the district court's grant of summary judgment de novo, examining the record in the light most favorable to the non-moving party. Sound of Music Co. v. 3M, 477 F.3d 910, 914 (7th Cir.2007).

II

In order to be entitled to collect a fee, AFNI must show that the fee is either authorized by the governing contract or that it is permitted by Wisconsin law. See 15 U.S.C. § 1692f(1). In AFNI's view, the district court erred when it rejected each one of these alternatives.

A

We consider first whether Wisconsin law allows a debt collector in AFNI's position to impose the 15% fee that AFNI wanted to charge. AFNI argues that the fee falls within the definition of incidental or consequential damages for the customer's breach of the underlying contract. Therefore, it reasons, the fee may be collected by an entity that purchases the contract for collection purposes.

AFNI is correct to point out that Wisconsin (like every state) permits recovery of losses that are the natural and probable result of the breach of a contract and that were within the reasonable contemplation of the parties. Magestro v. N. Star Envtl. Const., 256 Wis.2d 744, 649 N.W.2d 722, 725-26 (2002); Peterson v. Cornerstone Prop. Dev., LLC, 294 Wis.2d 800, 720 N.W.2d 716, 730 (2006). This rule applies to service contracts like the plaintiffs' cell phone contracts, just as it applies to employment and construction contracts. See Handicapped Children's Educ. Bd. v. Lukaszewski, 112 Wis.2d 197, 332 N.W.2d 774, 778 (1983).

The fact that Wisconsin follows this well established rule is not enough, by itself, to allow AFNI to recover. It must show that this rule permits a third-party purchaser of an account to recover its internal costs to recover the debt in this manner, and, if so, that the 15% fee it charged to the plaintiffs reflected AFNI's actual costs. To establish the first proposition, AFNI relies heavily on the Second Circuit's decision in Tuttle v. Equifax Check, 190 F.3d 9 (2d Cir. 1999). In Tuttle, the plaintiff, while he was standing just under a prominent sign warning that a collection fee of $20 would be imposed for dishonored checks, wrote a check for approximately $57 at a hardware store. His check, though authorized by Equifax, later bounced. Under the contract between Equifax and the store, Equifax guaranteed all checks that it authorized. When a check was dishonored, Equifax was obligated to purchase it at face value and then pursue collection efforts on its own.

Tuttle asserted that Equifax was not entitled to collect a $20 fee in conjunction with its effort to collect on the $57 check, but the jury rejected his arguments and the Second Circuit affirmed. The court found that Connecticut law authorized the collection of the fee:

Article 2 of the UCC, as adopted in Connecticut, provides that "[w]hen the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under section 42a-2-710, the price . . . of goods accepted." Conn. Gen.Stat. § 42a-2-709. The "incidental damages" permitted under § 42a-2-709 "include any commercially reasonable charges, expenses or commissions . . . otherwise resulting from the breach," id. § 42a-2-710, and may be recovered by a seller or by a "person in the position of a seller," id. § 42a-2-707. The latter includes (as the commentary advises) "a financing agency which has acquired documents . . . by discounting a draft for the seller. . . ." Conn. Gen.Stat. Ann. § 42a-2-707, comment (West 1990 & Supp.1999). More generally, a "financing agency" is defined in the UCC as one "who in the ordinary course of business . . . by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or...