Indiana District Court Adopts Supreme Court's Analysis of Definition of a Debt Collector

On September 28, 2017, a federal judge in Indiana adopted the Supreme Court's analysis that a purchaser of debt is not a debt collector under the Federal Debt Collection Practices Act (FDCPA), 1692 et seq. by denying in part plaintiff's amended motion for summary judgment in a putative class action case. The case is Mitchell v. LVNV Funding, LLC, et al. (Case No. 12-cv-523, U.S.D.C., Northern District of Indiana).  

The court issued an Opinion and Order, a copy of which can be found here. 

Background 

Capital Management Services, LP was contracted by Resurgent Capital Services, LP ("Resurgent") to collect on the alleged debt incurred by plaintiff. LVNV Funding LLC ("LVNV") is a purchaser of debts, owner of plaintiff's debt and was listed as the Current Creditor on the collection letter at issue in this matter. Alegis Group LLC ("Alegis") is the sole general partner of Resurgent.  

In the amended complaint, plaintiff made two primary arguments: 

1. Defendants violated the FDCPA as Capital Management sent a collection letter, attempting to collect on a time-barred debt, without the proper written disclosures; and
2. All defendants, including LVNV, were liable under the FDCPA for the actions of Capital Management because it was acting as an agent when it sent the letter to collect the debt. 

Plaintiff brought an amended motion for summary judgment pursuant to Fed. R. Civ. P. 56.  In response, defendants brought their own cross motion for summary judgment. 

Editor's note: Summary judgment is warranted when the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). 

The Court's Order 

With regard to plaintiff's first argument, the court ruled in favor of plaintiff and adopted the Seventh Circuit's analysis that it is a violation of the FDCPA if when collecting on a time-barred debt a debt collector did not 1) inform a consumer that a collector cannot sue to collect the debt, and 2) alert the consumer that a partial payment may restart the applicable statute of limitations. insideARM.com recently wrote about the growing trend of courts adopting the Seventh Circuit’s analysis here.  

As to the plaintiff's second argument, plaintiff argued that all defendants are responsible for the violation in the letter because they are all debt collectors under the FDCPA, including LVNV. 

The court ruled in favor of defendants, and adopted the Supreme Court's recent decision in Henson v. Santander Consumer USA, Inc., 137 S. Ct. 1718 (2017). In Henson, the Supreme Court ruled that a "company collecting purchased defaulted debt for its own account" is not a debt collector. The parties agreed that LVNV was the owner of plaintiff's debt and sought to use Resurgent to collect on the debt for its own account, not the account for another. As such, the court stated, LVNV is not a debt collector under the FDCPA.  (An additional case to be decided in favor of the debt purchaser after the ruling in Henson is Chernyakhovskaya v. Resurgent Capital Services, LP. Read the opinion here.) 

insideARM Perspective 

insideARM has posted several articles regarding the Henson decision, including this one, as well as an announcement from the Receivables Management Association (RMA) urging caution when interpreting the decision. 

Deciding to not follow the FDCPA as a result of the Henson decision undoubtedly comes with many risks. But there is no reason why those owning accounts and placing them for collection with another should not evaluate whether to use the court’s analysis above to avoid FDCPA liability. 

We suspect additional decisions will be forthcoming that apply the Henson decision to “passive” debt buyers, i.e. those who purchase debt but themselves do not collect on it. insideARM will continue to monitor any developments.