West v. Costen, Civ. A. No. 79-0210-R.

Decision Date02 March 1983
Docket NumberCiv. A. No. 79-0210-R.
PartiesKatie Ellen WEST, et al., Plaintiffs, v. William C. COSTEN, et al., Defendants.
CourtU.S. District Court — Western District of Virginia

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Henry L. Woodward, Roanoke, Va., for plaintiffs.

Raymond R. Robrecht, Salem, Va., for defendants.

OPINION and INTERLOCUTORY SUMMARY JUDGMENT

TURK, Chief Judge.

Plaintiffs bring this class action alleging that the defendants, William C. Costen (Costen), Multi-Service Factors, Inc. (MSF), Deborah J. Kirksey (Kirksey), Janet Lee (Lee), and Virginia M. Price (Price), have violated the Fair Debt Collection Practices Act (FDCPA or the Act), 15 U.S.C. § 1692 et seq. The court has jurisdiction under 15 U.S.C. § 1692k(d) and 28 U.S.C. § 1331. The action is before the court on the plaintiffs' motion for partial summary judgment on the issues of liability and on the defendants' motion for summary judgment. See Fed.R.Civ.P. 56(c).

1. The FDCPA

In 1977 Congress enacted the FDCPA in response to national concern over "the use of abusive, deceptive and unfair debt collection practices by many debt collectors." 15 U.S.C. § 1692(a). The purpose of the FDCPA is "to protect consumers from a host of unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors." S.Rep. No. 382, 95th Cong., 1st Sess. 1-2, reprinted in 1977 U.S.Code Cong. & Ad.News 1695, 1696.

The FDCPA sets forth a nonexclusive list of unlawful debt collection practices. Although it does provide for public enforcement by the Federal Trade Commission (FTC), see 15 U.S.C. § 1692l, it is "primarily self-enforcing," S.Rep. No. 382, supra at 5, 1977 U.S.Code Cong. & Ad.News at 1699, through private causes of action. Individual consumers may recover actual damages and a civil penalty up to $1,000 for violations of the Act. 15 U.S.C. § 1692k(a). In the case of a class action, each named plaintiff may recover the above amounts and all other class members may recover up to the lesser of 1% of the collector's net worth or $500,000. Id. Attorney fees may also be awarded if the consumer proves a violation of the FDCPA. Id.

2. Procedural History

On August 15, 1979, six individual plaintiffs (West, Walker, Jackson, Dawson, Spangler, and Preston) filed this suit as a class action under the FDCPA seeking actual and statutory damages for themselves and their class and subclass for an alleged pattern of illegal collection practices by the defendants.

With the exception of Costen, the defendants moved to dismiss for lack of jurisdiction and to deny class certification. By order entered September 24, 1979, the court denied the motion to dismiss and declined to pass upon the class motion. A joint answer was filed for all defendants.

Plaintiffs then moved for class certification and for a preliminary injunction prohibiting the defendants from using certain collection practices. After an evidentiary hearing, supplemented by affidavits, the court on January 17, 1980, entered an order finding for purposes of injunctive relief only a continuing pattern of practices prohibited by the FDCPA, certifying a class for purposes of injunctive relief only, and enjoining the defendants from violating various provisions of the Act.

The parties thereafter completed depositions and other discovery, except with regard to defendant Lee who failed to appear for her deposition. In May 1980, plaintiffs moved to intervene Thennie V. Dent (Dent) as an additional named plaintiff. In July 1980, all defendants moved to deny certification of a class for damages, and Costen moved for summary judgment in his favor on the basis that he is not a "debt collector" within the meaning of the FDCPA. See 15 U.S.C. § 1692a(6). The court took Costen's motion under advisement at a hearing on July 23, 1980.

On September 29, 1980, plaintiffs renewed their motion for class certification for damages and moved for partial summary judgment as to the liability of the defendants.

On January 26, 1981, counsel for the defendants moved for, and was granted, leave to withdraw as counsel. Although given 30 days to retain new counsel in addition to being given notice of a hearing on March 2, 1981, on plaintiffs' motions, the defendants did not appear either in person or by counsel at the March 2 hearing.

On March 6, 1981, the court entered an order permitting Dent to intervene as a named plaintiff in this action. The court's March 6 order also certified this action, as to MSF and Costen only, as a class action for damages pursuant to Fed.R.Civ.P. 23(b)(3). The order recites that the court found that MSF and Costen had engaged in a pattern of collection practices which plaintiffs alleged violate the FDCPA. A class was certified consisting of all persons from whom the defendants had collected or attempted to collect a debt since August 15, 1978. In addition, a subclass was certified consisting of all persons from whom the defendants had collected any charges other than the amounts owed as debts of those persons since August 15, 1978. The class certification for damages was conditional upon plaintiffs providing to the court a plan for adequate notice to class members and for management of further proceedings as a class action. The court reserved decision on plaintiffs' motion for partial summary judgment.

The defendants retained new counsel later in March 1981. Then, on April 23, 1981, the defendants moved to set aside the court's March 6 order. By order entered June 23, 1981, the court denied defendants' April 23 motion.

Meanwhile, on May 4, 1981, Costen filed a voluntary petition in bankruptcy under Chapter 13. On July 1, 1981, Costen filed an application for removal of this action from this court to the United States Bankruptcy Court for the Western District of Virginia. On July 21, 1981, this action was transferred to the bankruptcy court. But on August 11, 1982, the bankruptcy court returned this action to this court because of the question of its jurisdiction in light of the holding in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). By order entered August 12, 1982, this action was reinstated on the docket of this court.

Over defendants' objection, on October 12, 1982, the court granted plaintiffs' motion to supplement the notice previously given to the class and subclass certified in this action. The published supplemental notice provided that class members who did not opt out by November 1, 1982, would be included in the court's ruling on the merits of this action.

The court heard argument on plaintiffs' motion for partial summary judgment and defendants' motion for summary judgment on November 24, 1982.

3. Factual Background

The plaintiffs are all natural persons who were living in or near Roanoke at the time of their dealings with the defendants. Except for Spangler, the plaintiffs either owed, or at one time owed, the debts which the defendants attempted to collect for various creditors. Plaintiff-intervenor Dent denies owing the debt on which collection was attempted from her and her son. The defendants' collection attempts which are the subject of the case sub judice all occurred between September, 1978 and January, 1980.

MSF was a Pennsylvania corporation which was licensed to do business in Virginia.1 Costen was the president of MSF. His job was to obtain new accounts from merchants and retailers. Costen dep. 30. As part of his compensation, Costen received ten percent of the amount that MSF earned from the accounts that he personally sold. Id. at 30-31. Jeffrey P. Johnson was the vice president and secretary of MSF. Karen Mayberry was MSF's treasurer. These same individuals also served as directors of the corporation.

MSF's individual collection agents were paid on a commission basis only; they received no salary. Id. at 44. Robert Shisler, MSF's office manager, was responsible for recruiting and training new collection agents, as well as for setting and computing their commissions. Id. at 44, 46, 58. MSF apparently had no formal training for its "commissioned collection agents," however. Kirksey dep. 55; Price dep. 22, 49-50; Jackson dep. 21-22. Instead, they learned their collection methods on an informal basis from other individual collectors. Price dep. 22, 28. But MSF's collection agents were told that they must comply with the FDCPA, Costen dep. 58-59; Kirksey dep. 55, 84; Price dep. 45, 50, and FTC rules concerning debt collection practices were posted on the office walls where they worked. Kirksey dep. 59, 84; Price dep. 22.

Most of the debts that MSF attempted to collect were dishonored checks. After MSF obtained an account, the creditor would deliver the bad checks to the corporation. A work card was then prepared from each check. Costen dep. 52. A carbon copy of the work card was kept in a master file and the hard copy was distributed to the individual collectors. Id. However, prior to the individual collectors taking any action themselves, a secretary would send the debtors a letter advising them that they had a check outstanding, who it was to, and the amount. Kirksey dep. 85. If the debtor did not respond to the initial letter within two weeks, the individual collectors would then attempt collections. Id. at 85-86. The individual collectors would first mail printed forms demanding payment by a specified time. Then, if the forms did not work, they would make telephone calls to the debtors. MSF's collection agents sometimes made personal visits to the debtor's residence. All collection efforts were to be noted on the hard copy of the work card. If a check was paid, it would be returned to the client, along with the amount of the check less MSF's commission, and the work card destroyed. Costen dep. 52. If the check could not be collected, it would be...

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