Terran v. Kaplan

• Decision Date: 28 March 1997
• Docket Number: Nos. 95-17402,96-15010,s. 95-17402
• Citation: 109 F.3d 1428
• Parties: , 37 Fed.R.Serv.3d 467, 97 Cal. Daily Op. Serv. 2271, 97 Daily Journal D.A.R. 4137 Christopher M. TERRAN, Plaintiff-Appellant-Cross-Appellee, v. Jerold KAPLAN, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1428

109 F.3d 1428

65 USLW 2634, 37 Fed.R.Serv.3d 467,

97 Cal. Daily Op. Serv. 2271,

97 Daily Journal D.A.R. 4137

Christopher M. TERRAN, Plaintiff-Appellant-Cross-Appellee, v. Jerold KAPLAN, Defendant-Appellee-Cross-Appellant.

Nos. 95-17402, 96-15010.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Mar. 10, 1997.

Decided March 28, 1997.

Michael C. Shaw, Bybee & Shaw, Tempe, Arizona, for the plaintiff-appellant-cross-appellee.

Stanley M. Hammerman, Hammerman & Hultgren, Phoenix, Arizona, for the defendant-appellee-cross-appellant.

Appeals from the United States District Court for the District of Arizona, Earl H. Carroll, District Judge, Presiding. D.C. No. CV-94-01880-EHC.

Before: ALARCON, BEEZER, and O'SCANNLAIN, Circuit Judges.

ALARCON, Circuit Judge.

This action arises from a letter sent by Jerold Kaplan, in his capacity as a debt collector, to Christopher Terran to collect on a debt Terran owed to Montgomery Ward Credit Corporation in the amount of $546.63 (the "collection letter"). Terran appeals from the district court's denial of a damage award following its determination that the collection letter violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692a-o. Kaplan cross-appeals from the district court's conclusion that the letter violated the FDCPA. Both parties challenge the district court's order that each party must bear its own attorneys' fees and costs.

We conclude that Kaplan's collection letter did not violate the FDCPA. Because we reverse the district court on this ground, we do not reach Terran's challenge to the district court's denial of damages. We further remand for a recalculation of attorneys' fees and costs due Kaplan and for clarification of whether Terran, his counsel, or both are responsible for the payment of these fees and costs under Rule 11 of the Federal Rules of Civil Procedure.

I

On May 16, 1994, Kaplan, a debt collection attorney, mailed an initial letter of indebtedness to Terran (the "collection letter"). The one-page letter, typed on Kaplan's law office letterhead, contained three paragraphs set in a uniform size and typeface. The letter stated:

Please be advised that this office represents MONTGOMERY WARD CREDIT CORP with whom you have an outstanding balance of $546.63.

Unless an immediate telephone call is made to J SCOTT, a collection assistant of our office at (602) 258-8433, we may find it necessary to recommend to our client that they proceed with legal action.

Unless you notify us in writing within thirty (30) days after receipt of our initial notice that you dispute the validity of this debt, or any portion thereof, we will assume the debt to be valid. Upon such notification, we will obtain verification of the debt or a copy of the judgment against you and a copy of such verification or judgment will be mailed to you. Upon your written request within the thirty (30) day period described above we will provide you with the name and address of the original creditor if different from the current creditor.

On September 9, 1994, Terran filed a complaint in the district court against Kaplan alleging violations of 15 U.S.C. §§ 1692e(3), (5), (10), ¹ & 1692g ² of the FDCPA; unreasonable debt collection practices under Ariz.Rev.Stat. §§ 32-1001; and intentional infliction of emotional distress. Terran demanded actual damages, statutory damages, punitive damages, and attorneys' fees and costs. On March 22, 1995, Terran moved for summary judgment solely on the § 1692g claim. The district court denied the motion on May 12, 1995, concluding that the claim presented a disputed question of fact for the jury. On June 12, 1995, Terran unilaterally moved for a dismissal of all the claims in the complaint with prejudice except the § 1692g claim. This motion was granted. He further indicated that the only relief he sought was statutory damages under 15 U.S.C. § 1692k, ³ in the amount of $1,000.

Immediately prior to trial, on July 5, 1995, Kaplan filed a trial memorandum in which he claimed that Terran had asserted claims in his complaint in bad faith and for purposes of harassment under § 1692k(a)(3), and without a good faith inquiry and a reasonable basis as required by Rule 11. ⁴ Accordingly, Kaplan requested reasonable attorneys' fees and costs.

Following a bench trial, the district court issued a Memorandum and Order on November 9, 1995, in which it concluded that Kaplan's collection letter was "at best minimally violative" of the FDCPA. The district court denied Terran statutory damages based on the absence of evidence of "willful or repeated disregard" of the FDCPA, ⁵ and further ordered that each party bear its own fees and costs.

II

Congress enacted the FDCPA to " 'eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid.' " Swanson v. Southern Oregon Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir.1988) (quoting S.Rep. No. 95-382, at 4 (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1699). "[T]o ensure that debt collectors g[i]ve consumers adequate information concerning their legal rights," id. (citation omitted), section 1692g(a) requires that the initial communication with a consumer in connection with a debt contain: (1) the amount of the debt; (2) the name of the creditor; (3) a statement that if the consumer, within thirty days after 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 disputes the debt, the debt collector will mail the consumer verification of the debt or a copy of a judgment; and (5) a statement that, upon the consumer's written request, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Terran does not dispute that the collection letter contained all of the statements required under section 1692g. Rather, he asserts that the additional language in the letter "overshadowed and/or contradicted the validation notice."

Under the law of this circuit, whether the initial communication violates the FDCPA depends on whether it is "likely to deceive or mislead a hypothetical 'least sophisticated debtor.' " Wade v. Regional Credit Ass'n, 87 F.3d 1098, 1100 (9th Cir.1996) (quoting Swanson, 869 F.2d at 1225). The objective least sophisticated debtor standard is "lower than simply examining whether particular language would deceive or mislead a reasonable debtor." Swanson, 869 F.2d at 1227. To satisfy section 1692g's requirements, "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 ... [and it] must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency." Id. at 1225 (citation omitted).

A

We have not previously been called upon to decide the appropriate standard to review a district court's determination, following a bench trial, that language in a letter sent by a collection agency contradicts and overshadows the statutorily required validation notice so as to confuse or mislead a least sophisticated debtor.

Whether there has been a violation of section 1692g's validation requirement has generally been decided by district courts on motions for summary judgment and, therefore, reviewed de novo. See United States v. National Fin. Servs., Inc., 98 F.3d 131, 139 (4th Cir.1996) (affirming district court's grant of summary judgment for debtor because collection agency raised no issue of fact concerning the district court's determination that the language at issue conflicted with the validation notice). Nonetheless, the caselaw makes clear that the question whether language in a collection letter overshadows or contradicts the validation notice so as to confuse a least sophisticated debtor is a question of law. See Swanson, 869 F.2d at 1225-26 (reversing the district court's grant of a summary judgment in favor of collection agency and holding that the collection letter violates section 1692g because it misleads a least sophisticated debtor); see also Russell v. Equifax A.R.S., 74 F.3d 30, 33, 35 (2d Cir.1996) (noting that "only legal issues, which we review de novo, are contested," reversing district court's grant of summary judgment in favor of collection agency, and concluding that the language overshadowed and contradicted the validation notice and thus, "violated § 1692g as a matter of law"); Graziano v. Harrison, 950 F.2d 107, 111, 114 (3d Cir.1991) (reversing district court's determination that the collection letter did not violate section 1692g, and concluding that the letter failed to "meet the terms of section 1692g"); Miller v. Payco-General American Credits, Inc., 943 F.2d 482, 484-85 (4th Cir.1991) (reversing district court's grant of summary judgment for collection agency, and holding that validation notice was overshadowed and contradicted, preventing its effective communication). But see Baker v. G.C. Servs. Corp., 677 F.2d 775, 778 (9th Cir.1982) (concluding that the district court's finding that "the notice 'does not inform [the debtor] that he may dispute only a portion of the debt' and thus violate[s] § 1692g(a)(3)," is a question of fact that must be upheld unless clearly erroneous). We review a district court's conclusions of law following a bench trial de novo. Magnuson v. Video Yesteryear, 85 F.3d 1424, 1427 (9th Cir.1996).

Our conclusion that the determination of whether a collection letter violates section 1692g is a question of law that we review de novo is buttressed by the rationale behind our de novo review standard for contracts and other written instruments, including collective bargaining agreements and trust agreements. See, e.g., Northern Cal. Dist. Council of Laborers v. Pittsburg-Des Moines Steel...