White v. Goodman

• Decision Date: 11 January 2000
• Docket Number: 98-4328 and 98-4329,Nos. 98-4180,s. 98-4180
• Citation: 200 F.3d 1016
• Parties: (7th Cir. 2000) Patricia White, on her behalf and on behalf of all others similarly situated, et al., Plaintiffs-Appellants, v. Jerome Goodman, et al., Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1016

200 F.3d 1016 (7th Cir. 2000)

Patricia White, on her behalf and on behalf of all others similarly situated, et al., Plaintiffs-Appellants, v. Jerome Goodman, et al., Defendants-Appellees.

Nos. 98-4180, 98-4328 and 98-4329

In the United States Court of Appeals For the Seventh Circuit

Argued September 23, 1999

Decided January 11, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 97 C 7078, 98 C 5911 & 98 C 5435--James B. Moran, Judge. [Copyrighted Material Omitted] Before Posner, Chief Judge, and Manion and Rovner, Circuit Judges.

Posner, Chief Judge.

One of the practices that the Fair Debt Collection Practices Act, 15 U.S.C. sec.sec. 1692 et seq., forbids is "flat-rating," the term popularly applied to providing a form which creates the false impression that someone (usually a collection agency) besides the actual creditor is "participating" in collecting the debt. sec. 1692j(a); see S. Rep. No. 382, 95th Cong., 1st Sess. 5 (1977). (The provider of the form presumably charges a "flat rate" for the form; hence the popular name for the practice.) The element of deception lies less in the misrepresentation that a third-party debt collector is involved than in the signal, conveyed by turning over a debt for collection, that the creditor does not intend to drop the matter. Congress's concern was that such deception might induce debtors to abandon legitimate defenses. Whether the concern was well founded is not for us to say.

The flat-rater is thus not the creditor, but the counterpart of a contributory infringer in the law of intellectual property; he furnishes a deceptive instrumentality to the primary violator. Another provision of the Act, 15 U.S.C. sec. 1692a(6), brings the latter within the scope of liability by forbidding a creditor, in the collection of his debts, to use a name which suggests the involvement of a third party, unless the third party is participating in the debt collection, for then there is no deception. Conceivably this provision could be read so narrowly as to reach only the case in which the creditor is using a pseudonym; but this reading, as the cases interpreting section 1692a(6) make clear, Maguire v. Citicorp Retail Services, Inc., 147 F.3d 232, 235 (2d Cir. 1998); Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232 (5th Cir. 1997), is too narrow. A separate provision forbids the use of a pseudonym by a debt collector, 15 U.S.C. sec. 1692e(14), and while a debt collector is not a creditor the section we have just cited indicates that the statute distinguishes between the use of pseudonyms, on the one hand, and a false representation that a third party (which may exist) is participating in debt collection, on the other.

For many years North Shore Agency, Inc., a debt- collection service, has had an arrangement with Book-of-the-Month Club that works as follows. (The arrangement has never been reduced to writing, but there is no material dispute over how it works.) When unsuccessful in obtaining payment from one of its customers, Book-of-the- Month Club sends the name and address of the customer to North Shore, which writes the customer demanding payment of the sum that Book- of-the-Month Club has informed North Shore is due, and stating that further collection efforts may ensue if the demand is ignored. "Be prepared for further collection activity," as the letter to one of the named plaintiffs put it. Before mailing the letter, North Shore runs a computer check on the customer's name in order to eliminate debtors whom it would be futile to dun. For example, if the computer check reveals that the debtor is in bankruptcy, North Shore will not bother to send him a letter, because a debt to a book club is ordinarily too small to warrant filing a claim in bankruptcy.

The contents of the dunning letter are a collaborative product of North Shore and Book-of-the-Month Club, and the letter directs the customer to pay the latter directly. The letter lists a phone number for North Shore but it is a number for messages only, and the messages are forwarded to Book-of-the-Month Club rather than being handled by North Shore. If the letter fails to elicit payment, Book-of-the-Month Club will so notify North Shore, which may send another letter; and, if it does, this sequence may be repeated a number of times, until North Shore is convinced that the debtor is not going to pay in response merely to a demand. Book-of-the-Month Club pays North Shore a flat fee for each letter that North Shore mails.

If the letters fail to elicit payment of the debt, Book-of-the-Month Club retransmits the customer's name and address to North Shore and it is then up to North Shore to decide what additional efforts, if any, to make to collect the debt. Because the debts usually are very small, North Shore probably does nothing further in most cases, although the record is barren of data. If it does make further efforts and succeeds in obtaining money from the debtor, it keeps 35 percent of the "take" as its compensation and remits the balance to Book-of- the-Month Club.

Patricia White received such a letter, demanding the princely sum of $18.45, and responded not by paying or by questioning the validity of the debt, but by declaring bankruptcy and later by bringing a class action suit against North Shore, Book-of-the-Month Club, the company that stuffs and mails the envelopes that North Shore sends Book-of-the-Month Club's debtors, and a shareholder of North Shore (Mr. Goodman, the first defendant named in the complaint). A similar though more limited action was brought on behalf of two other debtors but against North Shore only. The two cases were...