Big Week in the 7th Circuit: Settlement Offers, Envelopes, Creditor ID, and More

Tuesday was a big day in the Seventh Circuit with three significant court decisions: two from the Court of Appeals and one from the Northern District of Illinois. They span the gamut of being good to bad for the industry—something that the iA Case Law Tracker makes super simple to keep up with. As with most things in life, it’s best to just rip off the bandaid, so let’s start with the bad news and end on a positive note.

Context Required for Creditor ID

Steffek v. Client Servs., No. 19-1491 (7th Cir. Jan. 21, 2020) deals with the issue of identifying the creditor to whom the debt is owed. The debt collector sent a collection letter that listed “RE: CHASE BANK USA, N.A.” in the header but provided no further context on the creditor information. The consumer sued, arguing that it’s unclear from the letter whether Chase is the current creditor or if the account was sold. After discovery showed that Chase was indeed the current creditor, the district court granted summary judgment in favor of the debt collector.

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Not so fast, says the Seventh Circuit. According to the court, the determination of who the actual creditor is should not be the be-all-end-all of analysis on the creditor identification issue. The question is whether the letter clearly identifies the current creditor in such a way that is understandable to the unsophisticated consumer. 

The Seventh Circuit determined that the letter in question here does not pass this test. The court agreed that the letter doesn’t explicitly need to use labels such as “creditor” or “owner of the debt,” but simply stating the creditor’s name without any context does not pass muster. 

Ultimately, the court reversed the district court’s decision and remanded the matter with instruction to enter summary judgment in favor of the consumer.

A Split Decision: Envelopes and Settlement Offers

While Steffek is a hard decision to read, we now come to a half-and-half decision dealing with envelopes and settlement offers. The facts of Preston v. Midland Credit Mgmt., No. 18-3119 (7th. Cir. Jan. 21, 2020), start off with a plot similar to the movie Inception—there was an envelope within an envelope. The debt collector sent a settlement offer letter to the consumer. The letter was enclosed in an envelope that had “TIME SENSITIVE DOCUMENT” typed on it. This envelope was encased in a larger envelope that contained a glassine window for the address information and no other markings. 

The consumer sued, alleging that the markings on the envelope violate § 1692f(8) of the FDCPA which prohibits language or symbols on the envelope. The district court dismissed the envelope claim, finding that the markings fall under the benign language exception since “TIME SENSITIVE DOCUMENT” does not in any way imply that the contents within are related to the collection of a debt. 

The Seventh Circuit was not convinced and took a more literal reading of § 1692f(8). While the debt collector argued that Congress’ intent behind § 1692f(8) was to protect the privacy of consumers, the Seventh Circuit said that the statute and its application are clear so there is no need to delve into congressional intent. A clear reading of the statute, according to the court, does not lead to absurd results—it still allows for markings placed on envelopes by, for example, the postal service in order to facilitate the delivery of mail. However, the “TIME SENSITIVE DOCUMENT” text goes beyond what is permitted in § 1692f(8). Due to this, the court reversed the dismissal. 

Editor’s Note: Oddly enough, the Seventh Circuit did not discuss the impact of this marked envelope being encased in a larger envelope. It seems that to the court an envelope is an envelope no matter how it’s sliced. 

Another claim brought by the consumer in Preston relates to the settlement offer contained within the letter. The letter contained three options to settle the debt with due dates. The consumer’s argument was that this, along with the “TIME SENSITIVE DOCUMENT” marking on the envelope, created a false sense of urgency and was false, deceptive, and misleading. 

Both the district court and the Seventh Circuit disagreed with the consumer. The letter’s saving grace, according to the courts, was that it included a safe harbor disclosure of “we are not obligated to renew this offer.” 

On the Verge of Sanctioning Plaintiff’s Counsel for Manufactured Claims

It’s no secret to debt collectors that some consumer attorneys bait FDCPA in order to manufacture claims against debt collectors, and thus force debt collectors into settlements. Back in September, the Northern District of Illinois called out plaintiffs’ counsel—a lawyer from Community Lawyers Group, Ltd.—for his scheme of faxing credit report disputes to obscure numbers in an effort to manufacture claims against a debt collector. In the September opinion, the court called out the following:

• “In the instant case plaintiffs (more specifically their attorneys) were the principal author of the harm of which they complain.”
• “Although the FDCPA is well intentioned, the mandatory recovery of attorney’s fees to a successful plaintiff has turned FDCPA cases into a profitable vein of litigation upon which entire firms focus their practices, provided, of course, the firms can keep finding plaintiffs. Indeed, as the Seventh Circuit has noted, the driving force behind these cases are the attorneys (particularly class action attorneys) and their quest for attorney’s fees.”
• “In the instant case, it appears to this court that plaintiffs’ attorneys’ actions were designed to avoid defendant’s procedures reasonably adapted to avoid errors, for the purpose of manufacturing a lawsuit. . . And, this is not the first time these lawyers have attempted this sort of stunt.”

After all of this, the debt collector filed a motion for attorney fees against plaintiff’s counsel. In the Irvin v. Nationwide Credit & Collection, Inc., No. 18-cv-2945 (N.D. Ill. Jan 21, 2020) decision, it’s obvious the court has had it with the plaintiff’s attorneys. Unfortunately, the court denied the motion for fees because the debt collector brought the motion only under the FDCPA’s fee-shifting statute. The court found that its authority to order fees from plaintiff’s counsel is uncertain under the FDCPA. 

However, the court stated in not so many words that had this motion been brought under a Rule 11 motion for sanctions, the outcome might have been very different. The decision ends with the following:

Plaintiff’s counsel, Celetha Chatman and Michael Wood, have been admonished and warned repeatedly by this and other courts in this and other districts concerning their misconduct in fabricating FDCPA cases for the purpose of collecting attorney’s fees. Should that conduct occur in the future, this court will not hesitate to impose severe sanctions on these lawyers. 

What does this mean for debt collectors? If you have any claims from these attorneys—especially if these claims are before Judge Gettleman—it’s time to get aggressive with defense strategies and move for sanctions where appropriate.

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