Stratton v. Portfolio Recovery Associates, LLC
770 F.3d 443
| 6th Cir. | 2014Background
- Dede Stratton defaulted on a GE Money credit card; GE "charged off" the $2,630.95 balance and ceased charging contractual interest on December 19, 2008.
- GE later assigned the charged-off account to Portfolio Recovery Associates (PRA), a debt buyer that likely paid pennies on the dollar.
- PRA sued Stratton in Kentucky state court seeking the principal plus 8% pre-judgment interest (the Kentucky statutory rate), even though the original contract set interest at 21.99% and GE had stopped charging interest after charge-off.
- Stratton brought a putative class action under the Fair Debt Collection Practices Act (FDCPA), alleging PRA falsely represented the amount/character of the debt and attempted to collect interest not authorized by contract or law.
- The district court dismissed; the Sixth Circuit majority reversed, holding (1) under Kentucky law an assignor who agreed to a contractual rate and then waived contractual interest cannot recover the default statutory rate, and (2) asserting an unauthorized statutory interest claim in litigation can violate the FDCPA.
- Judge Batchelder dissented, arguing (inter alia) that Kentucky § 360.010 could reasonably be read to allow statutory prejudgment interest after charge-off and that imposing FDCPA liability for a reasonable, unsettled state-law interpretation overexpands the Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an assignee may collect Kentucky statutory interest after the creditor contracted for and then waived a higher contractual interest rate | Stratton: waiver of contractual interest does not revive a previously displaced statutory right; assignee cannot collect 8% where contractual rate existed and was waived | PRA: after charge-off GE was not assessing the contract rate, so no contractually agreed rate was being applied post-charge-off and the statutory rate governs | Held for Stratton: Kentucky law binds assignor/assignee to the contract rate; waiver of contractual interest does not permit collection of statutory interest later claimed by assignee |
| Whether alleging and suing to collect statutorily unauthorized interest can violate FDCPA § 1692e/1692f | Stratton: suing to collect interest that is not authorized by agreement or law is a false/misleading representation and an unfair practice under FDCPA | PRA: pleading for statutory interest was an aspirational/requested amount; litigation conduct should be treated differently and the act of filing is not necessarily a "threat" under § 1692e(5) | Held for Stratton: such a complaint can plausibly constitute false representation of amount/character and an attempt to collect an amount not authorized by law, thus stating FDCPA claims |
| Applicability of FDCPA to litigation activities | Stratton: FDCPA applies to litigation; Supreme Court and statute show litigation is a form of debt collection and not exempt | PRA: district court had treated litigation claims differently; defendant emphasized limits on converting state-law errors into FDCPA claims | Held: FDCPA governs litigating activities; Supreme Court precedent (Heintz, Jerman) and statutory amendments support application in court filings |
| Proper standard for consumer perception | Stratton: assess claims under the least-sophisticated-consumer standard; an unsophisticated consumer would be misled by the complaint's assertion of 8% interest | PRA: the least-sophisticated standard shouldn't convert reasonable state-law disputes into federal liability; complaints seeking court-determined interest are not threats | Held: apply the least-sophisticated-consumer standard; under that lens PRA plausibly misrepresented amount/character of the debt |
Key Cases Cited
- Heintz v. Jenkins, 514 U.S. 291 (1995) (FDCPA applies to lawyers' litigation activities)
- Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, 559 U.S. 573 (2010) (FDCPA imposes constraints on lawyers' advocacy; statutory amendments affect pleadings coverage)
- Currier v. First Resolution Inv. Corp., 762 F.3d 529 (6th Cir. 2014) (FDCPA construed broadly; litigation activities can trigger liability)
- Hartman v. Great Seneca Fin. Corp., 569 F.3d 606 (6th Cir. 2009) (begin FDCPA analysis with statutory text; litigation not immune)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard for plausibility under Rule 12(b)(6))
- Frey v. Gangwish, 970 F.2d 1516 (6th Cir. 1992) (FDCPA is broad and remedial; breadth informs construction)