8th Cir. Rejects FDCPA Claims Relating to Assignment of Collection Services Agreement

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment in favor of debt collectors over claims of purported violations of the federal Fair Debt Collection Practices Act.

In so ruling, the Eighth Circuit concluded that the assignment of a contract from one debt collector to its successor entity put it into privity with the original collector’s agreement with a medical services provider to satisfy Minnesota’s third-party debt collector’s written contract requirements, and the successor entity could legally take action to collect that debt on behalf of the provider. 

The Eighth Circuit further concluded that the debt collectors did not threaten to take actions they could not legally take or attempt to collect a debt by unfair or unconscionable means in violation of sections 1692e(5) and 1692f(1) of the FDCPA, 15 U.S.C. 1692, et seq., because the Treasury Department regulations governing hospital facilities and organizations did not apply to the debt collectors.

A copy of the opinion in Klein v. Affiliated Group, Inc. is available at:  Link to Opinion.

A consumer obtained services from a healthcare provider, who denied her application for financial assistance to pay for her services. The healthcare provider retained a debt collector (“Debt Collector 1”) to collect the outstanding debt and sent a letter to the consumer in November 2017 informing her that “the below listed account(s) has been turned over to us by our client, who has given you an opportunity to satisfy this obligation” – without mention of the provider’s financial assistance policy.

In January 2018, all of Debt Collector 1’s contracts, assets, employees, obligations, and rights including its written agreement with the medical provider for debt collection services, were assigned or transferred to a successor entity (“Debt Collector 2”) and all accounts were consolidated under Debt Collector 2’s name. In March 2018, Debt Collector 2 sent a similar letter to the consumer seeking to collect the outstanding medical debt and omitting information regarding the provider’s financial assistance program.

At all relevant times, the provider was subject to the Minnesota Attorney General’s requirement to enter into written contracts with any third-party debt collection agency, which required the debt collectors to comply with federal law, and the provider to confirm that patients are provided reasonable opportunity to apply for charitable care or other need-based relief.

The consumer filed suit against Debt Collector 1 and Debt Collector 2 (the “debt collectors”) arguing they violated the FDCPA by (i) failing to have a written contract with the provider as required, (ii) failing to include information about the provider’s financial assistance program in the November 2017 and March 2018 letters, and (iii) false, deceptive, or misleading information in the March 2018 letter.

The trial court granted the debt collectors’ motion for summary judgment, entering judgment in the debt collectors’ favor and against the consumer.  The instant appeal followed.

On appeal, the consumer first argued that the trial court erred by granting summary by improperly relying on disputed facts — specifically, that the records did not evidence a merger between the debt collectors, and thus, no contract existed between the provider and successive entity, Debt Collector 2.

Although both sides argued over facts related to the integration and assignments of contract rights between the debt collector entities, the Eighth Circuit reasoned that the issue of whether there was a formal merger was not material if the assignment of contract rights from Debt Collector 1 to Debt Collector 2 created a contract between the provider and Debt Collector 2 to satisfy the state’s written contract requirement.

Here, in accordance with Minnesota contract law and assignment, the Eighth Circuit determined that because the trial court established that there was a written agreement between the provider and Debt Collector 1, that the assignment placed Debt Collector 2 into privity with the original parties.  Cascades Development of Minnesota, LLC v. National Specialty Insurance, 675 F.3d 1095, 1099 (8th Cir. 2012) (quoting Illinois Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 803 (Minn. 2004)) (emphasis omitted) (an assignment “place[s] the assignee in the shoes of the assignor, and provides the assignee with the same legal rights as the assignor had before assignment.”).  Accordingly, no dispute over a material fact existed on this issue and entry of summary judgment was appropriate.

Next, the consumer argued that the March 2018 letter’s representation that the provider “turned over” her account to Debt Collector 2 violated the FDCPA’s prohibition against false, deceptive, or misleading information (§ 1692e) because her account was either never turned over or at most assigned to Debt Collector 2 when it sent the March 2018 letter. 

This argument also was rejected by the Eighth Circuit based upon its determination that Debt Collector 2 was the valid assignee of the contract between the provider and Debt Collector 1, and thus could legally take action to collect the debt on the provider’s half. 

Even viewing the claims under the lens of the unsophisticated consumer, the purportedly violative language would not be considered false or misleading by a reasonable jury because the November 2017 and March 2018 letters contained identical language and disclosures of the amounts and owners of the debt, and even included the same contact information and administrator’s signature.

Lastly, the Eighth Circuit considered the consumer’s claims that the debt collectors violated § 1692e(5) and § 1692f(1) of the FDCPA by attempting to collect her debt without notifying her of North Memorial’s financial assistance policy.

The trial court concluded that because the debt collectors “are not hospital organizations” and “do not operate hospital facilities” that the Treasury Department regulations requiring the provider to include its financial assistance policy in its billing statements did not apply.  The consumer argues that this interpretation of Section 1692e(5) (which prohibits debt collectors from making a “threat to take any action that cannot legally be taken or that is not intended to be taken”) and Section 1692f(1) (outlawing “unfair or unconscionable means” of debt collection, including collecting “any amount” unless “such amount is expressly authorized by the agreement creating the debt or permitted by law”) improperly allows a debt collector to engage in an activity the original hospital creditor could not.

The Eighth Circuit sided with the trial court, concluding that the provider assigned only its ability to collect debt to the debt collectors, and not its medical billing function, and that the FDCPA does not impute the provider’s requirement to comply with the Treasury Department’s medical billing regulations to debt collectors. 

Accordingly, because the debt collectors did not violate the FDCPA, the Eighth Circuit held that the trial court did not err in granting summary judgment and judgment in their favor was affirmed.