US v. National Financial Services, Inc., Civ. No. L-91-226.

• Decision Date: 08 January 1993
• Docket Number: Civ. No. L-91-226.
• Citation: 820 F. Supp. 228
• Parties: UNITED STATES of America v. NATIONAL FINANCIAL SERVICES, INC., Robert J. Smith, and N. Frank Lanocha.
• Court: U.S. District Court — District of Maryland

820 F. Supp. 228

UNITED STATES of America v. NATIONAL FINANCIAL SERVICES, INC., Robert J. Smith, and N. Frank Lanocha.

Civ. No. L-91-226.

United States District Court, D. Maryland.

January 8, 1993.

COPYRIGHT MATERIAL OMITTED

Jacqueline H. Eagle, Office of Consumer Litigation, U.S. Dept. of Justice, Washington, DC, for plaintiff.

Gerard P. Martin, Matthew S. Sturtz, Miles & Stockbridge, Baltimore, MD, for defendants.

MEMORANDUM

BLAKE, United States Magistrate Judge.

The United States of America filed this action against National Financial Services (N.F.S.), Robert J. Smith (Smith), and N. Frank Lanocha (Lanocha), alleging that defendants' collection activities violated the Fair Debt Collection Practices Act, 15 U.S.C. section 1692 et seq. (FDCPA). This case has been referred to the undersigned magistrate judge by consent of the parties for final disposition, pursuant to 28 U.S.C. section 636(c) and Local Rule 301. Now pending before me are the parties' cross-motions for summary judgment. For the following reasons, the defendants' motions will be denied and the government's motion will be granted in part and denied in part.

In 1983, American Family Publishers (AFP), a magazine subscription company, began turning over its delinquent accounts to N.F.S., a collection agency owned by Smith, for debt collection. (Deposition of Robert J. Smith, at 3, 6).¹ Upon receiving these accounts, N.F.S. would send each debtor a collection letter, written by Smith, demanding payment of the debt.² (Id. at 9; Government's Memorandum of Points and Authorities in Support of Its Motion for Partial Summary Judgment, Exhibit 1). If the letter failed to exact payment as demanded, more were sent.³ (Deposition of Robert Smith, at 70). If, following this wave of notices, the debtor still refused to pay, N.F.S. would then turn the account over to Lanocha, an attorney, for collection.⁴ (Id. at 71; Deposition of N. Frank Lanocha, at 98, 111, 114). Lanocha, with the help of N.F.S. computers,⁵ would then send out collection letters, advising AFP debtors that he represented American Family and had the authority to institute suit against them if they did not settle their accounts. (Deposition of N. Frank Lanocha, at 60, 62-66, 73-75; Government's Memorandum, Exhibits 2 & 3). While discussions concerning the institution of legal proceedings against AFP debtors had occurred between Lanocha and AFP,⁶ no actual suits were filed after 1984.⁷ (Deposition of N. Frank Lanocha, at 46-52, 55; Government's Memorandum, Exhibit 5 at 3).

In 1985, the Federal Trade Commission (FTC) began investigating Smith, N.F.S. and Lanocha for possible violations of the Fair Debt Collection Practices Act, 15 U.S.C. section 1692 et seq. (FDCPA). (Defendants Lanocha, N.F.S. and Smith's Memorandum in Support of Motion for Summary Judgment, at 1). On February 1, 1991, the United States filed suit against the defendants, alleging violations of sections 1692e(5), 1692e(10), and 1692g of the FDCPA related to letters used during 1986-1992. (Memorandum in Opposition to Plaintiff's Motion for Partial Summary Judgment, at 1; Government's Memorandum, at 1-2). On October 9, 1991, the defendants moved for summary judgment. The government opposed and filed its own motion for partial summary judgment on October 28, 1991. The government's motion was followed by a response from the defendants on November 25, 1991, which, in turn, was followed by a reply from the government on December 12, 1991. The case was referred to the undersigned judge on September 3, 1992.

Rule 56(c) of the Federal Rules of Civil Procedure provides that:

Summary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

As stated by the Supreme Court, this does not mean that any factual dispute will defeat the motion:

By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986) (emphasis in original).

Moreover, the Supreme Court has explained that the Rule 56(c) standard mirrors the standard for a directed verdict under Federal Rule of Civil Procedure 50(a): "... there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., supra, 477 U.S. at 249, 106 S.Ct. at 2510; White v. Rockingham Radiologists, Ltd., 820 F.2d 98, 101 (4th Cir.1987). "The party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 240 (4th Cir.1988). Further, the court has an affirmative obligation to prevent factually unsupported claims and defenses from proceeding to trial. Felty v. GravesHumphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987), citing, Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

As noted above, the subjects of summary judgment in this case concern alleged violations of sections 1692e(5), 1692e(10) and 1692g of the FDCPA. In pertinent part, section 1692e(5) and e(10) provide:

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: ...

(5) The threat to take any action that ... is not intended to be taken....⁸

(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

In determining whether a violation of 1692e(5) has been proved, two steps must be followed. First, the language of the notice must be evaluated to determine what action is threatened. Second, it must be determined whether the debt collector who sent the notice intended to take the threatened action. Jeter v. Credit Bureau, 760 F.2d 1168, 1176 (11th Cir.1985); United States v. ACB Sales & Service, Inc., 590 F.Supp. 561, 570 (D.Ariz.1984). See also Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1226-27 (9th Cir.1988). In applying the first prong of this analysis, courts differ on whether the meaning of the language in the notice should be evaluated under a "reasonable juror"/"average debtor" standard or a "least sophisticated debtor" standard. In Jeter, the court held that "the sophistication, or lack thereof, of the consumer is irrelevant to whether the debt collector `threatened to take any action ... that was not intended to be taken.'" 760 F.2d at 1175. Finding that conflicting inferences could be drawn from the letters at issue, Jeter directed that threatened action be interpreted by a "reasonable jury." See also ACB, 590 F.Supp. at 571 ("average debtor"); Blackwell v. Professional Business Services, 526 F.Supp. 535, 538 (N.D.Ga.1981) ("reasonable consumer" standard applied to all violations of § 1692 et seq.). The Ninth Circuit, however, at least as to violations of 1692e(5) resulting from a threat to take action that could not legally be taken, has held that the threat should be evaluated under the least sophisticated debtor standard, because "otherwise, a debt collector could couch threatened action in language that misleads some debtors as to what the debt collector could legally do." Swanson, 869 F.2d at 1227. Further, the least sophisticated debtor standard was applied to a 1692e(5) intent violation in United States v. CAB, 667 F.Supp. 370, 378 (N.D.Tex.1986).

I find it most consistent with the purposes of the Act, as discussed in Jeter, 760 F.2d at 1172-75, to use the least sophisticated consumer standard in evaluating all violations of § 1692e(5). Otherwise, a consumer could be misled as to the debt collector's intentions yet deprived of the Act's protection against threats of unintended action. I would find the same violations noted below, however, under either a "least sophisticated" or a "reasonable consumer" standard.

The Jeter court does apply the least sophisticated debtor standard in resolving alleged violations of 1692e(10). Whether a particular representation or means of collection is deceptive is to be judged in terms of its tendency to mislead the least sophisticated recipient of the debt collector's letters. Jeter, 760 F.2d at 1175; see also Riveria v. MAB Collections, Inc., 682 F.Supp. 174, 178 (W.D.N.Y.1988); but see Blackwell, 526 F.Supp. at 538. I will apply the least sophisticated debtor standard to the 1692e(10) violations alleged in this case.

With respect to violations under section 1692g, a different set of criteria applies. Under the terms of this section, a collector must, either in its initial communication or within five days of its initial communication, provide a consumer with the following information: (1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that the collector may presume the debt to be valid if the debtor does not dispute the debt, or any portion of it, within thirty days of receiving notice; (4) a statement that verification of the debt will be provided, if requested in writing within thirty days of receiving notice; and (5) a statement that the collector will provide the consumer with the name and address of the original creditor, if requested in writing within thirty days of receiving notice. 15 U.S.C. section 1692g(a)(1)-(5). If the debtor requests...