Swanson v. Southern Oregon Credit Service, Inc.

• Decision Date: 29 March 1989
• Docket Number: 87-3874,Nos. 87-3756,s. 87-3756
• Citation: 869 F.2d 1222
• Parties: James A. SWANSON, Plaintiff-Appellant-Cross-Appellee, v. SOUTHERN OREGON CREDIT SERVICE, INC., Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1222

869 F.2d 1222

James A. SWANSON, Plaintiff-Appellant-Cross-Appellee, v. SOUTHERN OREGON CREDIT SERVICE, INC. Defendant-Appellee-Cross-Appellant.

Nos. 87-3756, 87-3874.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 6, 1988.

Decided Dec. 16, 1988.

As Amended March 29, 1989.

Doug S. Gard, Medford, Or., for plaintiff-appellant-cross-appellee.

Christopher A. Ledwidge, Frohnmayer, Deatherage, deSchweinitz, Pratt & Jamieson P.C., Medford, Or., for defendant-appellee-cross-appellant.

Appeal from the United States District Court for the District of Oregon.

Before WALLACE and REINHARDT, Circuit Judges, and STEPHENS, ^* Senior District Judge.

PER CURIAM:

Swanson appeals from the district court's entry of summary judgment to Southern Oregon Credit Service, Inc. (Southern Oregon). Swanson alleges that some of Southern Oregon's debt collection practices violated the Fair Debt Collection Practices Act, 15 U.S.C. Secs. 1692 et seq. (1982) (Federal Act), and the Oregon Unlawful Debt Collection Practices Act, Or.Rev.Stat. Sec. 646.639 (1987) (Oregon Act). The district court had jurisdiction over the Federal Act claims under 15 U.S.C. Sec. 1692k(d). It declined to exercise jurisdiction over the pendent state claims. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. We affirm in part, and reverse and remand in part.

I

Swanson owed $262.20 to Cascade Community Hospital. The hospital referred collection of the debt to Southern Oregon. Southern Oregon sent various notices to Swanson and made an indeterminate number of telephone calls in an attempt to collect the debt.

In Swanson's suit against Southern Oregon, he alleged that some of Southern Oregon's debt collection practices violated the Federal Act and the Oregon Act. The district court granted summary judgment for Southern Oregon with respect to Swanson's claims under the Federal Act, denied Swanson's motion for partial summary judgment, and declined to exercise jurisdiction over Swanson's pendent state law claims under the Oregon Act. The district court denied Southern Oregon's request for attorneys' fees and costs. Swanson timely appealed and Southern Oregon cross-appealed the denial of attorney fees and costs. We review a summary judgment de novo. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986).

II

Swanson argues that the first notice that Southern Oregon sent to him (initial communication) violates the validation of debts provision contained in 15 U.S.C. Sec. 1692g(a). That section provides that debt collectors must send consumers written notice containing certain information regarding the alleged debt and advising them inter alia that it will be assumed to be valid unless the consumer contests its accuracy or validity within thirty days. The section reads as follows:

(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing--

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after the receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from that of the current creditor.

15 U.S.C. Sec. 1692g(a). Congress designed the Federal Act to "eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid." S.Rep. No. 382, 95th Cong.2d Sess. 4, reprinted in 1977 U.S.Code Cong. & Admin.News 1695, 1699. It added the validation of debts provision specifically to ensure that debt collectors gave consumers adequate information concerning their legal rights. See id., 1977 U.S.Code Cong. & Admin.News at 1702. In this circuit, the impact of language alleged to violate section 1692g is judged under the "least sophisticated debtor" standard. Baker v. G.C. Services Corp., 677 F.2d 775, 778 (9th Cir.1982) (Baker ). That is, if we find that the least sophisticated debtor would likely be misled by the notice which Swanson received from Southern Oregon, we must hold that the credit service has violated the Act.

Swanson admits that the initial communication from Southern Oregon contained the basic language required by section 1692g, but argues that its message was contradicted and "overshadowed" by the balance of the notice. The notice Southern Oregon sent Swanson contained, in bold faced type several times larger than the debt validation notice required by section 1692g, the following message:

"IF THIS ACCOUNT IS PAID WITHIN THE NEXT 10 DAYS

IT WILL NOT BE RECORDED IN OUR MASTER FILE AS AN UNPAID COLLECTION ITEM.

A GOOD CREDIT RATING--IS YOUR MOST VALUABLE ASSET."

Beneath this language, in small, standard-face type, was the notice required by the statute. Swanson argued to the district court, and contends again here, that the "visual effect" of the large type language overshadowed the debt validation notice, and that its language and tone constituted an impermissible threat of harm to his credit rating if he should avail himself of the Act's 30 day validation period.

The magistrate, whose findings were adopted without revision or comment by the district court, termed Swanson's argument "frivolous," concluding that "[n]othing in the notice can reasonably be construed as threatening [Swanson] with adverse consequences." This conclusion is patently at odds with the tenor and text of the notice itself. The reference to the undefined "master file," juxtaposed with the admonition that Swanson's credit rating was his "most valuable asset," cannot reasonably be interpreted as anything but a threat: if Swanson did not pay within 10 days, his name would be placed in Southern Oregon's "master file" and as a result he would lose his "most valuable asset."

The magistrate's conclusion demonstrates a fundamental misconception of the nature of section 1692g. The statute is not satisfied merely by inclusion of the required debt validation notice; the notice Congress required must be conveyed effectively to the debtor. It must be large enough to be easily read and sufficiently prominent to be noticed--even by the least sophisticated debtor. Baker, 677 F.2d at 778. Furthermore, to be effective, the notice must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency. E.g., Thomas v. National Business Assistants, Inc., No. N82-469 (D.Conn. Oct. 5, 1984) ("inconspicuous and grossly overshadowed" notice did "not properly notify recipients of their validation of debt rights"); Ost v. Collection Bureau, Inc., 493 F.Supp. 701, 703 (D.N.D.1980) (Ost ) (communication must not be designed to "evade the spirit of the notice statute, and mislead the debtor into disregarding the notice").

Reviewing the Southern Oregon notice which Swanson received through the eyes of the least sophisticated debtor, there is little question that it is misleading in both form and content. The required debt validation notice is placed at the very bottom of the form in small, ordinary face type, dwarfed by a bold faced, underlined message three times the size which dominates the center of the page. More importantly, the substance of the language stands in threatening contradiction to the text of the debt validation notice. The prominence and message of the "master file" and "most valuable asset" language, lead the least sophisticated debtor, and quite probably even the average debtor, only to one conclusion: he must ignore his right to take 30 days to verify his debt and act immediately or he will be remembered as a deadbeat in the "master file" of his local collection agency and will, accordingly, lose his "most valuable asset," his good credit rating.

Congress designed section 1692g to provide alleged debtors with 30 days to question and respond to the initial communication of a collection agency. The form used by Southern Oregon in this case invokes a shorter response period, promising harm to the debtor who waits beyond 10 days. The form thus represents an attempt "on the part of the collection agency to evade the spirit of the notice statute and mislead the debtor into disregarding the [required debt validation] notice." Ost, 493 F.Supp. at 703 (collection form requesting payment in five days with validation notice printed in small print on reverse did not comply with section 1692g).

Accordingly, we hold that Southern Oregon's initial communication with Swanson violated section 1692g of the Federal Act.

III

Swanson also attacks the second notice that Southern Oregon sent him which stated: "Unless payment in full or definite arrangements are made on your account(s) within 48 hours a complete investigation will begin concerning your employment and assets." Swanson argues that the second notice violates 15 U.S.C. Sec. 1692e(5) because Southern Oregon could not legally contact Swanson's employer concerning the debt.

Swanson relies on 15 U.S.C. Secs. 1692e(5), 1692c(b), and 1692a(2). Section 1692e(5) ¹ bars a debt collector from making a threat "to take any action that cannot legally be taken." Section 1692c(b) ² prohibits a debt collector from "communicating"...