Simpson v. Merchants Recovery Bureau, Inc., 98-2004

• Citation: 171 F.3d 546
• Decision Date: 24 March 1999
• Docket Number: No. 98-2004,98-2004
• Parties: Carmencita SIMPSON, Plaintiff-Appellant, v. MERCHANTS RECOVERY BUREAU, INC., doing business as Recoveries Unlimited, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 546

171 F.3d 546

Carmencita SIMPSON, Plaintiff-Appellant, v. MERCHANTS RECOVERY BUREAU, INC., doing business as

Recoveries Unlimited, Defendant-Appellee.

No. 98-2004.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 30, 1998.

Decided March 24, 1999.

Daniel A. Edelman, James O. Latturner (argued), Edelman & Combs, Chicago, IL, for Plaintiff-Appellant.

Richard T. Sikes, Jr. (argued), Freeborn & Peters, Chicago, IL, for Defendant-Appellee.

Before FLAUM, KANNE, and EVANS, Circuit Judges.

KANNE, Circuit Judge.

Carmencita Simpson appeals from the district court's sua sponte grant of summary judgment in favor of Merchants Recovery Bureau, Inc. ("MRB"). Because Simpson received neither proper notice that the district court was considering entering summary judgment against her, nor a fair opportunity to present evidence in opposition to the entry of summary judgment, we vacate the judgment of the district court and remand the case for further proceedings.

I. HISTORY

Carmencita Simpson ordered wooden french doors from Builders Square, Inc., and she paid for the doors with a personal check. Three days after she placed her order, Builders Square notified her that it would be unable to fulfill her order. After receiving little assistance from store personnel upon inquiring about Builders Square's refund procedure, Simpson stopped payment on her check. Five months later, Simpson received a letter from Builders Square's debt collector, Recoveries Unlimited, Inc., demanding payment on the stopped check. Recoveries had added a twenty-five dollar service charge to the original amount of the check and threatened criminal prosecution in the event Simpson did not pay the entire amount.

Simpson filed suit against Recoveries and Builders Square, ¹ alleging that Recoveries violated certain provisions of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., and the Illinois Collection Agency Act, 225 ILCS 425/1 et seq., by adding an unauthorized twenty-five dollar service charge to the actual amount of the claimed debt and by wrongfully threatening criminal prosecution for nonpayment. Her complaint also alleged that Builders Square was vicariously liable for the actions of its debt collector, Recoveries.

Based on her belief that Recoveries was a subsidiary of MRB, Simpson amended her complaint to name MRB as a defendant "doing business as" Recoveries and, therefore, directly liable for Recoveries' actions. In its answer, MRB denied this allegation and Simpson's claim that it performed or was otherwise responsible for any of Recoveries's actions in attempting to collect on the stopped check. Rather, MRB maintained that Recoveries was a separate and independent entity and asserted that the only relationship between Recoveries and MRB was contractual. In an attempt to convince Simpson that MRB bore no responsibility for Recoveries's actions and, hence, was not a proper defendant in this case, MRB furnished Simpson a copy of the written contract between MRB and Recoveries, which provided that Recoveries was an independent contractor employed to collect on accounts referred to Recoveries by MRB.

The issue of whether MRB was a proper defendant in this case first arose before the district court in a status hearing soon after MRB filed its answer. At that hearing, Simpson acknowledged that she was aware of MRB's position that it was a separate and independent entity from Recoveries and not responsible for Recoveries' actions. However, Simpson claimed that she had received conflicting information as to the true nature of the relationship between MRB and Recoveries and that she had not been able to confirm that the two were in fact separate entities. During the course of the hearing, MRB notified the court that it planned to move for summary judgment on the issue of whether MRB was a proper party to this suit. In an attempt to facilitate the resolution of this issue short of filing motions for summary judgment, the district court suggested that MRB provide Simpson with materials demonstrating that Recoveries was a separate entity to assist Simpson in unilaterally determining whether MRB was a proper defendant.

At the next status hearing, the parties again discussed whether MRB was a properly named defendant in this case. Simpson acknowledged that she received affidavits from the president of MRB and the owner of Recoveries attesting that MRB and Recoveries were separate and independent entities. Armed with this new information, Simpson sought the court's permission to file an amended complaint to reflect a different theory of liability against MRB. Simpson asserted that it was proper to proceed against MRB under a theory of vicarious liability because her research revealed case law suggesting that a collection agency that hires another collection agency could be held vicariously liable for the actions of the second agency if the agencies shared profits. MRB rejected Simpson's position and reiterated its intent to file for summary judgment, if necessary, on the issue of whether it was a proper defendant in this case. In an apparent second attempt to resolve the issue short of the parties filing motions for summary judgment, the district court directed the parties as follows:

Well, there ... is one way to resolve [a] dispute about what case law reflects, and that is you are going to provide, before you file or seek to file this proposed Amended Complaint, each counsel is to provide simply a letter to the Court, with copies of course to opposing counsel, citing the cases.... Don't argue them, just cite them. I will read them. I will give you a week to do that.... Make sure those filings are in chambers, because if they get filed down in the Clerk's Office I have no control over when I get them....

As directed, Simpson and MRB submitted letters to the district court. Simpson's submission complied with the court's directive--her letter cited four cases she believed supported an amendment to her complaint to include allegations of vicarious liability against MRB based on Recoveries's actions. In contrast, MRB's letter to the court consisted of four single-spaced pages that included both a "Facts" section and a "Law" section. Despite the court's admonition to "just cite" the relevant cases, not argue them, MRB's letter contained four paragraphs of argument. In addition, MRB appended several exhibits to its letter including: the contract between MRB and Recoveries; the affidavits from the president of MRB and the owner of Recoveries; correspondence from MRB to Simpson detailing MRB's position concerning the issue of vicarious liability; and an amended complaint from a related case involving another collection action by Recoveries. Simpson immediately moved to strike MRB's letter on the ground that the letter contained argument in direct contravention of the district court's instructions that the parties should submit only a list of cases.

Three days after the letters were submitted to the district court, and two days after Simpson moved to strike, the parties again appeared before the district court. The district court first denied Simpson's motion to strike MRB's letter, concluding that even though MRB's letter contained argument, it did not disadvantage Simpson. The court then proceeded to grant summary judgment sua sponte in favor of MRB. The court found that the cases proffered by Simpson did not support a theory of vicarious liability against MRB for Recoveries's actions in light of the court's understanding of the relationship between the two entities. The court relied on the contract, affidavits, and other materials provided by MRB, to conclude that MRB was an independent entity separate and apart from Recoveries and, therefore, not an "appropriate target" in this case.

The district court subsequently ordered that final judgment of dismissal be entered in favor of MRB. On appeal, Simpson challenges the district court's sua sponte grant of summary judgment in favor of MRB both on procedural grounds and on the merits.

II. ANALYSIS

Simpson submits that the district court erred in granting summary judgment sua sponte in favor of MRB because the court failed to provide her with adequate notice it was considering granting summary judgment against her and a fair opportunity to present her case in opposition to the entry of summary judgment. We agree on both counts.

While not encouraged, a district court can enter summary judgment sua sponte, or on its own motion, under certain limited circumstances. See Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Goldstein v. Fidelity & Guar. Ins. Underwriters, Inc., 86 F.3d 749, 750 (7th Cir.1996); English v. Cowell, 10 F.3d 434, 437 (7th Cir.1993). However, "[g]ranting summary judgment sua sponte warrants special caution." Sawyer v. United States, 831 F.2d 755, 759 (7th Cir.1987) (emphasis added). As a general rule, a district court lacks the power to grant summary judgment sua sponte unless the party against whom summary judgment was entered had (1) proper notice that the district court was considering entering summary judgment and (2) a fair opportunity to present evidence in opposition to the court's entry of summary judgment. See Celotex, 477 U.S. at 326, 106 S.Ct. 2548 ("[D]istrict courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence."); English, 10 F.3d at 437 ("[I]t is rudimentary that a court cannot sua sponte enter summary judgment ... without notifying the parties of its intentions and allowing them an opportunity ... to respond."). Thus, the appropriateness of a district court's grant of summary judgment sua sponte turns on proper notice to the adverse party and a fair opportunity to be heard.

A. Notice

We first turn to whether the district court provided Simpson with proper notice...