Scott McMahon v. LVNV Funding, LLC
744 F.3d 1010
| 7th Cir. | 2014Background
- Two consolidated appeals challenge whether debt-collection letters for time‑barred debts can mislead an unsophisticated consumer into believing the debt is legally enforceable, violating the FDCPA.
- McMahon: LVNV sent a collection letter about a 14‑year‑old Nicor Gas debt offering a 60% “settlement.” McMahon sought verification, filed an FDCPA suit with class claims; LVNV later made a settlement offer to the named plaintiff and the district court dismissed the case as moot and denied class claims.
- Delgado: CMS sent a letter offering a 30% “settlement” on an eight‑year‑old debt without disclosing the statute‑of‑limitations bar; Delgado sued under the FDCPA and the district court denied CMS’s motion to dismiss.
- Both district courts considered agency guidance (FTC/CFPB) that collectors should disclose when a debt is time‑barred and that partial payments may revive the debt; courts in other circuits (Third, Eighth) had held no FDCPA violation absent a threat of litigation.
- The Seventh Circuit (Wood, Chief Judge) consolidated the matters for opinion: affirmed denial of dismissal in Delgado and reversed dismissal in McMahon, holding that letters that misrepresent legal enforceability (including via “settlement” offers) can violate the FDCPA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a dunning letter for a time‑barred debt that omits limitations information can mislead an unsophisticated consumer and violate the FDCPA | Such letters (and settlement offers) can create the false impression the debt is legally enforceable and that payment is necessary to avoid suit; this misrepresentation violates §1692e/§1692f | No violation unless the letter threatens litigation; mere collection attempts or truthful statements that paying would "settle" a debt are permissible | Held: Omission that leaves an unsophisticated consumer misled about legal enforceability can violate the FDCPA; settlement language can be deceptive and supports denial of dismissal in Delgado and reversal in McMahon |
| Whether an unaccepted settlement offer to the named plaintiff moots the action and defeats class representation | McMahon: the offer did not fully resolve all contingencies and class claims survived because he acted promptly to amend and seek certification | LVNV: the offer provided full individual relief, so the named plaintiff lacked a personal stake and was an inadequate class representative; case was moot | Held: Offer did not moot McMahon; his rejection and quick filing to preserve class claims kept controversy alive; reversal and remand for further proceedings |
| Whether the FDCPA requires disclosure when collector knows or should know debt is time‑barred | Plaintiffs and federal agencies: disclosure (cannot sue; partial payment may revive) avoids misleading unsophisticated consumers | Defendants: no duty to disclose limitations status; use of "settle" is not misleading | Held: Court accepts agencies' view as persuasive; collectors who misrepresent legal status (or imply enforceability via settlement offers) can violate FDCPA; disclosure recommended though not rigidly mandated |
| Circuit split with Third and Eighth Circuits over necessity of a threat of litigation | Plaintiffs: statute prohibits false or misleading statements about legal status regardless of threat | Defendants: following Huertas and Freyermuth, argue no FDCPA violation absent threatened/actual litigation | Held: Rejected Third/Eighth approach; false/misleading statements about legal status violate §1692e even without litigation threat |
Key Cases Cited
- Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir.) (collection of time‑barred debts can violate FDCPA)
- Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769 (7th Cir. 2007) (unsophisticated‑consumer standard and assessment of whether dunning letters mislead)
- Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011) (defendant can moot a putative class by offering full relief before certification; timing rules for certification)
- Scott v. Westlake Servs. LLC, 740 F.3d 1124 (7th Cir.) (clarifies when an unaccepted offer can or cannot moot an individual claim)
- Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326 (1980) (named plaintiff’s continuing economic stake can prevent mootness after offer of judgment)
- U.S. Parole Comm'n v. Geraghty, 445 U.S. 388 (1980) (class status can preserve a controversy separate from named plaintiff’s claim)
- Symczyk v. Genesis Healthcare Corp., 133 S. Ct. 1523 (2013) (FLSA collective‑action context on mootness from employer’s offer of full relief)
- Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011) (held no FDCPA violation for time‑barred collection absent threat of litigation)
- Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767 (8th Cir. 2001) (similar rule to Huertas regarding threats of litigation)