952 F.3d 1089
9th Cir.2020Background
- McAdory owed a consumer debt to Kay Jewelers; DNF Associates purchased the debt and allegedly resold or assigned collection to third parties (e.g., MNS / First Choice Assets).
- McAdory received a letter from First Choice and later a voicemail from an MNS agent who threatened suit; she agreed to pay but alleges MNS prematurely withdrew funds and committed multiple FDCPA violations.
- McAdory sued DNF and MNS under the FDCPA; she alleged DNF’s "principal purpose" is the collection of defaulted consumer debts and sought to hold DNF vicariously liable for MNS’s acts.
- DNF moved to dismiss under Rule 12(b)(6); the district court dismissed DNF with prejudice, reasoning that debt buyers that do not directly interact with consumers are not "debt collectors" under the FDCPA’s principal-purpose definition.
- The Ninth Circuit reversed, holding that an entity meeting the principal-purpose definition cannot avoid FDCPA status merely by outsourcing collection; remanded for further proceedings (including vicarious-liability analysis as appropriate).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the FDCPA’s "principal purpose" prong require direct interaction with consumers? | McAdory: No; a business whose dominant objective is collecting debts qualifies even if it uses contractors. | DNF: Yes; "collection" means the act of collecting and therefore requires direct collection activity. | The court held: No direct-interaction requirement; the principal-purpose prong can cover debt buyers that outsource collection. |
| Did McAdory plausibly allege DNF’s "principal purpose" is debt collection? | McAdory: Complaint alleges DNF buys defaulted consumer debts for profit and derives the vast majority of income from collection. | DNF: Allegation is conclusory; its principal purpose is buying/ investing in debt, not collecting. | Court: At 12(b)(6) stage, allegations suffice to plausibly allege DNF’s principal purpose is debt collection; factual disputes for later. |
| Can DNF be vicariously liable for MNS’s FDCPA violations? | McAdory: If DNF is a debt collector, vicarious liability under agency principles may follow. | DNF: Absent direct collection activity, it cannot be held (and vicarious liability should not be imposed here). | Court: Did not decide vicarious liability; remanded for district court to apply ordinary agency/vicarious-liability principles. |
| Does status as a creditor preclude being a debt collector? | McAdory: A party can satisfy both definitions depending on its activities. | DNF: If also a creditor, it cannot be a debt collector. | Court: Rejected a per se rule excluding creditors; FDCPA definitions are not mutually exclusive. |
Key Cases Cited
- Barbato v. Greystone All., LLC, 916 F.3d 260 (3d Cir. 2019) (holds principal-purpose prong covers entities that buy debts and outsource collection)
- Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017) (interprets the "regularly collects" prong; did not address principal-purpose prong)
- Schlegel v. Wells Fargo Bank, N.A., 720 F.3d 1204 (9th Cir. 2013) (discusses FDCPA definitions and pleading standards)
- Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162 (9th Cir. 2006) (recognizes vicarious liability under the FDCPA and applies agency principles)
- Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379 (3d Cir. 2000) (discusses fairness rationale for vicarious liability of debt purchasers)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard for plausible claims at Rule 12(b)(6))
- Meyer v. Holley, 537 U.S. 280 (2003) (background principle that Congress legislates against traditional vicarious liability rules)