When Congress passed the Fair Debt Collection Practices Act it created a federal statutory right to damages for consumers who suffer abusive debt collection practices. One of those practices, the required disclosures in a communication with the consumer, was the subject of a recent decision by the Sixth Circuit Court of Appeals in Cincinnati.
The decision will give some comfort to consumer lenders and their lawyers in light of the judicial limitation it imposed on Congress when it creates federal statutory causes of action. Here the decision was in favor of the purported debt collector, the lender’s lawyer.
The FDCPA is frequently the subject of litigation. The possibility of damages for a consumer has prompted federal litigation the way honey draws bees. Here the honey was a claim against the lender’s lawyer and his law firm.
The facts in this case were not in question. This summary is drawn from a very well-written opinion by Judge Jeffrey Sutton of the Court of Appeals available here.
In 2010, James and Patricia Haggy defaulted on a mobile home loan. When foreclosure proceedings were initiated, Mrs. Hagy called the law firm representing the foreclosing lender. The foreclosure was settled when the Hagy’s conveyed a deed in lieu of foreclosure and the lender agreed not to sue the Hagy’s for any deficiency.
Unfortunately that was not the end of the matter because the lender subsequently, and mistakenly, began calling the Hagy’s for payment. The calls ceased once the Hagy’s pointed out the deed in lieu transaction but that was apparently insufficient because shortly thereafter, the Hagy’s sued both the lender and the lawyer and its law firm under FDCPA.
The lender and the Hagy’s settled. The lawyer and its firm did not.
The complaint against the law firm was based on the failure of the lawyer’s letters (he wrote two) to contain certain consumer warning disclosures required under FDCPA. The letters were fairly routine legal communications.
The first letter conveyed the deed in lieu paperwork to the Hagy’s. The second letter confirmed to their attorney that the paperwork had been received from them after they executed the paperwork and confirmed that the foreclosure had been resolved.
A number of legal issues pertaining to these letters were not resolved in this appeal. For example, one issue arising under the FDCPA is whether this letter to the Hagy’s attorney was the kind of communication on which a FDCPA warning should appear. Another issue –perhaps the same issue restated another way- is whether an attorney writing to another attorney is always issuing communication to which FDCPA applies.
Ultimately, the lawyer and law firm appealed from a lower court order awarding the Hagy’s $1,800 in statutory damages, $312 in costs and $74,196 in attorney’s fees. The honey is not always for the benefit of the consumer, it appears.
While this case was pending, the U.S. Supreme Court decided Spokeo, Inc. v. Robbins, 136 S. CT. 1540 (2016). In Spokeo, the Court held that a theoretical injury was insufficient to support damage claims arising under federal statutes like FDCPA.
In Hagy, the Sixth Circuit’s decision was an application of Spokeo because there appeared to be no injury in fact to the Hagy’s as a result of the lawyer’s letters. Indeed, the letters gave them exactly what they were hoping for, even if they should have contained FDCPA consumer warnings.
The Sixth Circuit’s decision was based on an inherent constitutional limitation on Congress’ ability to create federal statutory causes of action. Even in these cases, the Sixth Circuit reasoned, there must be a cognizable injury to support judicial jurisdiction under Article 3 of the U.S. Constitution.
The Sixth Circuit’s decision indicated:
We know of no circuit decision since Spokeo that endorses an anything-hurts-so-long-as-Congress-says-it-hurts theory of Article 3 injury. Although Congress may “elevate” harms that “exist” in the real world before Congress recognized them to actionable legal status, it may not simply enact an injury into existence, using its law making power to transform something that is not remotely harmful into something that is.
The Sixth Circuit concluded that no harm was suffered by the Hagy’s as a result of the attorney’s correspondence. In oral argument, the Hagy’s attorneys maintained that any correspondence without a disclaimer, even one sending a damages check to the Hagy’s for example, would have given rise to further damages because, it was argued, Congress said that failing to include the required disclosures was always actionable.
The Sixth Circuit was not persuaded:
All we need to say today is that Congress may not say anything is an injury, and by saying so expect the federal courts to agree. . . Because Congress made no effort to show how a letter like this would create a cognizable injury in fact and because we cannot see any way in which that could be the case, we must dismiss this claim for lack of standing.
There remains, of course, the possibility of further litigation should the Hagy’s and its counsel seek review of the Sixth Circuit opinion by the U.S. Supreme Court. The aforementioned honey pot may still provide sufficient temptation.