Attorney “On Retainer” for Collection Agency Must Provide his Own Validation Notice When Contacting a Consumer

On November 21, 2016 a United States District Court Judge ruled that an attorney “on retainer” for a collection agency who sends a letter to a consumer must provide his own validation notice to the consumer and cannot rely on a validation notice provided by the collection agency.  The case is Sanchez v. Jackson and Universal Fidelity (Case No. 16-cv-6144, U.S. District Court, Northern District of Illinois). A copy of the Memorandum Opinion and Order from the Honorable Judge John Robert Blakely can be found here.

Background

Sometime before the spring of 2016, Plaintiff, an Illinois resident, incurred a consumer debt from a Montgomery Ward credit account. Plaintiff did not pay the debt and it went into default. On or about March 22, 2016, Universal Fidelity, LP (Universal) sent a notice to Plaintiff regarding her outstanding debt.

On or about May 9, 2016, John Lee Jackson (Jackson) sent a one-page, two-sided collection letter to Plaintiff. The letter constituted Jackson’s initial communication with Plaintiff. The letterhead provided Jackson’s name and address and identified Jackson as an “ATTORNEY ON RETAINER FOR UNIVERSAL FIDELITY LP.” In the body of the letter, Jackson stated the following:

I am an Attorney and I am on retainer with Universal Fidelity LP. I am not an employee of Universal Fidelity LP and only advise them of corporate law and therefore advise them on legal matters. This letter is being sent to you because I am involved in the collection strategy of the outstanding accounts owed to them. You will not be sued by Universal Fidelity LP or by me, this is just a collection letter to request you pay this account owed to Montgomery Ward.

Their records indicate that you are indebted to them for the amount of $182.94. Universal Fidelity LP offers convenient payment options to help you satisfy this claim. I have received the files from Universal Fidelity LP Electronically [sic] and conducted a cursory review and approved the release of these letters. Do not consider this letter a notification of intent to sue: since I do not have the legal authority to sue and Universal Fidelity LP will not sue you, this is a request for payment only: I have not, nor will I, review the detail of your account status.

The bottom of Jackson’s letter stated, “This is an attempt to collect a debt and any information obtained will be used for that purpose. This communication is from a debt collector.” (emphasis in original). The bottom of the letter also provided a payment slip addressed to Universal.

The reverse side of Jackson’s letter stated, in relevant part (and in all caps), the following:

UNLESS YOU NOTIFY UNIVERSAL FIDELITY LP, WITHIN 30 DAYS AFTER RECEIVING YOUR INITIAL NOTICE THAT YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF, UNIVERSAL FIDELITY LP WILL ASSUME THIS DEBT IS VALID. IF YOU NOTIFY UNIVERSAL FIDELITY LP IN WRITING WITHIN 30 DAYS FROM RECEIVING YOUR INITIAL NOTICE, UNIVERSAL FIDELITY LP WILL OBTAIN VERIFICATION OF THE DEBT OR OBTAIN A COPY OF A JUDGEMENT [SIC] AND MAIL YOU A COPY OF SUCH JUDGEMENT [SIC] OR VERIFICATION. IF YOU MAKE A REQUEST TO UNIVERSAL FIDELITY LP IN WRITING WITHIN 30 DAYS AFTER RECEIVING YOUR INITIAL NOTICE, UNIVERSAL FIDELITY LP WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR.

On June 16, 2016, Plaintiff filed a class action suit. On August 25, 2016, Plaintiff filed her First Amended Complaint.  In the sole count of the Complaint, Plaintiff alleges that Defendants violated § 1692g(a) of the Fair Debt Collection Practices Act (FDCPA). Generally, § 1692g(a) provides that “in either the initial communication with a consumer in connection with the collection of a debt or another written notice sent within five days of the first, a debt collector must provide specific information to the consumer.”

On September 15, 2016, Defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (Editor’s Note: A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted). Judge Blakely’s Memorandum and Order was issued in response to that Motion. He denied Defendants Motion to Dismiss.

Plaintiff alleged that Jackson (and vicariously, Universal) violated this provision by failing to provide an adequate debt validation notice in conjunction with his May 9, 2016 letter. Jackson’s letter included a validation notice referencing Universal. Plaintiff maintains that Jackson cannot rely on a validation notice from another debt collector and instead must include his own disclosure referencing himself. In other words, Plaintiff asserts that § 1692g(a) required Jackson to notify Plaintiff of her right to contact Jackson directly to dispute or verify her debt.

The Court’s Decision

In refusing to dismiss the lawsuit, Judge Blakely agreed with Plaintiff.  First, Judge Blakely determined that Jackson was a “debt collector” and thus subject to the FDCPA. Judge Blakely then determined that Jackson was an “independent” debt collector and was required to provide the Plaintiff with his own validation notice in his initial communication with the consumer.

Judge Blakely wrote:

“Courts in this district are split as to whether § 1692g applies only to the first debt collector to make contact with a debtor, or rather to each successive debt collector in line. The trend, however, has been towards the latter.

This Court finds that § 1692g applies to the initial communication made in connection with the collection of a debt by each successive debt collector. Applied here, this includes Jackson’s May 9, 2016 letter to Plaintiff.

The Court however, cannot rest there, because this case presents the added wrinkle that Jackson’s letter to Plaintiff did include a debt notice—Universal’s. The letter informed Plaintiff to notify Universal in order to dispute or verify her debt, but said nothing of notifying Jackson. Defendants argue that this satisfies § 1692g(a). The Court therefore, must also determine whether an attorney debt collector acting as an agent on behalf of another debt collector must provide his own debt notice in addition to, or in lieu of, that of his client."

Once again, the Court answers this question in the affirmative.

"Defendants’ interpretation of § 1692g would introduce needless confusion to the debt verification process. Under the plain language of § 1692g(b), a debtor’s dispute or verification notice sent to an independent attorney agent would not suffice to halt collection activities by the collection agency client. Faced, however, with correspondence from a debt-collector attorney containing a notification provision referencing only the debt-collector client, it would not be per se unreasonable for a debtor to mistakenly believe that sending a validation request to the attorney sufficiently invoked the FDCPA’s statutory protections.”

insideARM Perspective

There is much that could be discussed about the facts in this case beyond the crux of the decision – the typos in the letter, the potentially confusing content of the letter, and/or the use of the strategy of sending a letter from an attorney (any attorney) on a $182.94 account. However, in the end, insideARM believes the court made the correct call. It is industry best practice NOT to rely on a validation notice sent by a prior debt collector and for every new (subsequent) debt collector to send a validation notice in an initial communication.

It is interesting that, in his opinion, Judge Blakely noted that Jackson could have easily satisfied his obligations by simply replacing references to Universal in his collection letter’s notification provision with references to himself.  The requisite disclosures were all there – they just referenced Universal, not Jackson.