Gary SMITH, Plaintiff-Appellant, v. TRANSWORLD SYSTEMS, INC., Defendant-Appellee.
No. 90-3727
United States Court of Appeals, Sixth Circuit
Argued May 7, 1991. Decided Jan. 14, 1992.
953 F.2d 1025
Before KRUPANSKY and MILBURN, Circuit Judges, and CONTIE, Senior Circuit Judge.
This failure of evidence, together with a failure to provide any legal precedent for the General Counsel‘s position, indicates that the standards for “substantial justification” have not been met. Both factual and legal underpinnings of the position are shaky, and it cannot be said that the position is justified “in the main.” Pierce, 487 U.S. at 565, 108 S.Ct. at 2550. Accordingly, there is no substantial evidence supporting the Board‘s conclusion in this regard, and, therefore, we conclude that it should be set aside.
III.
For the foregoing reasons, the Board‘s order is ENFORCED insofar as it denies an award of attorney fees in regard to the strike misconduct issue. However, the Board‘s order is REVERSED and REMANDED for an award of attorney fees with respect to the denial of opportunity issue.
Patrick J. Perotti (argued and briefed), Dworken & Bernstein, Painesville, Ohio, Karin P. Beam, Anderson, Zeigler, Disharoon & Gary, Santa Rosa, Cal., for Transworld Systems, Inc.
CONTIE, Senior Circuit Judge.
Plaintiff-appellant Gary M. Smith appeals the district court‘s summary judgment dismissal of his action challenging the debt collection practices of defendant-appellee Transworld Systems, Inc. For the following reasons, we affirm the district court‘s determinations.
I.
Plaintiff-appellant Gary M. Smith (“appellant” or “Smith“) owed Ryder Truck Rental, Inc. (“Ryder“) $446.21 for charges incurred in February 1988. In April, 1988, Ryder sent a statement to the appellant requesting payment of the debt. Smith requested documentation of this claim which was provided to him in October, 1988, along with Ryder‘s renewed demand for payment. Smith mailed his $446.21 check to Ryder on November 20, 1988; the appellant‘s bank records reveal that this check was charged against his account on November 23, 1988. On January 8, 1989, however, Ryder inadvertently referred Smith‘s account to the defendant-appellee, Transworld Systems, Inc. (“Transworld” or “appellee“), for collection. The referral form issued by Ryder to Transworld incorrectly stated the balance due as $456.21—Smith‘s November payment was not reflected on the referral form.
On January 13, 1989, Transworld sent a collection letter (resembling a telegram) to the appellant requesting payment of the
On January 27, 1989 (approximately one day after Transworld‘s Columbus office received Smith‘s letter), Transworld‘s Rohnert Park, California, office mailed Smith a second computer-generated collection letter. Transworld engaged in no further collection activities after January 27, 1989.
On May 26, 1989, Smith initiated this action in federal court alleging that Transworld had violated various federal and state law provisions enacted to protect consumers from unfair debt collection practices. Though Smith‘s complaint enumerated only two “Claims for Relief” (the first claim alleged violations under federal law; the second claim alleged violations under Ohio law), the district court separated Smith‘s convoluted federal claim into six distinct federal claims:
Count I charged that Transworld twice misrepresented the amount Smith owed, in violation of
15 U.S.C. § 1692e(2)(A) ;Count II charged that Transworld twice demanded an amount in excess of the amount actually due, in violation of
15 U.S.C. § 1692e(2)(A) ;Count III charged that Transworld failed to give Smith notice of his right to dispute a portion of the debt, in violation of
15 U.S.C. § 1692g(a)(3) ;Count IV charged that Transworld twice affiliated itself with the state of Ohio by representing itself as a “licensed agency,” in violation of
15 U.S.C. § 1692e(1) ;Count V charged that Transworld failed to cease and desist collection activities after being requested to do so, in violation of
15 U.S.C. § 1692g(b) ; andCount VI charged that Transworld failed to respond to Smith‘s demand to verify the debt, in violation of
15 U.S.C. § 1692g(b) .
See District Court‘s July 23, 1990 Memorandum Opinion at 5. Though Smith later moved to file an amended complaint to seek class certification pursuant to
On November 15, 1989, Smith filed a motion for partial summary judgment (the federal claims). On January 11, 1990, Transworld responded by filing its brief in opposition to Smith‘s summary judgment motion, and a cross-motion for partial summary judgment (the federal claims). In its response, Transworld raised (for the first time) a “bona fide error” defense: “A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”
Smith filed a memorandum opposing Transworld‘s motion for partial summary judgment on February 23, 1990, arguing that Transworld was precluded from maintaining a
On July 23, 1990, the district court judge: denied Smith‘s motion for partial summary judgment; granted Transworld‘s motion for partial summary judgment (thereby dismissing Smith‘s federal claims brought under the FDCPA); and, declined to exercise jurisdiction over Smith‘s pendent state claims (brought under the Ohio Consumer Sales Practices Act,
Smith thereafter filed a timely notice of appeal.
II.
Summary Judgment
Summary judgment is appropriate where “there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.”
Though the moving party has the burden of conclusively showing that no genuine issue of material fact exists, id., the nonmoving party, in the face of a summary judgment motion, may not rest on its pleadings but must instead come forward with some probative evidence to support its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); 60 Ivy St. Corp., 822 F.2d at 1435.
“By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986) (emphasis in original). The dispute must be genuine and the facts must be such that if they were proven at trial a reasonable jury could return a verdict for the nonmoving party. 60 Ivy St. Corp., 822 F.2d at 1435. If the disputed evidence “is merely colorable, or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2511 (citations omitted).
A.
Smith argues that Transworld‘s January 13, 1989 collection letter violated
Transworld Systems Inc. is a licensed collection agency and any information obtained from you will be used for the purpose of collecting this debt. All portions of this claim shall be assumed valid unless disputed within thirty days of receiving this notice. If disputed in writing, verification of the debt will be provided to you. If the original creditor is different from the above named creditor, the name and address of the original creditor will also be provided.
Joint Appendix at 49.
After correctly noting that a court “must determine whether the ‘least sophisticated consumer’ would be deceived by a collection agency‘s letters,” District Court‘s July 23, 1990 Memorandum Opinion at 17; see also Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1172-75 (11th Cir.1985) (adopting “least sophisticated consumer” standard), the district court found that Transworld‘s statement satisfied
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.
The language found in Transworld‘s January 13, 1989 letter (“All portions of this claim shall be assumed valid unless disputed within thirty days of receiving this notice“) clearly satisfies
B.
Smith next argues that Transworld twice violated
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section—[t]he false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.
Though Smith interprets the contested language in Transworld‘s letters (“Transworld Systems Inc. is a licensed collection agency and any information obtained from you will be used for the purpose of collecting this debt“) as an attempt by Transworld to represent that it is affiliated with the state of Ohio and, therefore, enjoys governmental approval, Smith overlooks the fact that Transworld is a licensed collection agency in twenty states, two foreign countries, and is licensed to do business in Ohio as a foreign corporation.
After distinguishing the limited case law that Smith cited to support his position, the district court concluded:
The Court finds that defendant did not misrepresent its government status within the State of Ohio in order to make its request for payment more compelling or threatening to the least sophisticated consumer. The least sophisticated consumer would not have been misled by either the language contained in defendant‘s collection letters or the statement concerning its licensing status which appeared in small print at the bottom of its letters.
District Court‘s July 23, 1990 Memorandum Opinion at 20.
The district court‘s finding is clearly correct. In addition to the statement being true (Transworld is a licensed collection agency in numerous states), Transworld‘s statement clearly falls outside the scope of
C.
Transworld failed to raise the bona fide error defense in its answer to Smith‘s complaint—Transworld first raised the defense in its motion for partial summary judgment. Smith therefore argues that Transworld may not rely on the bona fide error defense. The district court disagreed:
Although the defendant did not plead the affirmative defense of bona fide error in its Answer, the Court finds that plaintiff would not be prejudiced by permitting defendant to assert the bona fide error defense. Plaintiff responded to defendant‘s bona fide error defense claims after raising his objections to use of the defense. Plaintiff has had ample opportunity to file affidavits or deposition testimony to rebut defendant‘s use of the defense. Plaintiff cannot claim surprise or prejudice by the defendant‘s use of this defense. Therefore, the Court hereby permits defendant to assert the bona fide error defense to respond to plaintiff‘s claims.
District Court‘s July 23, 1990 Memorandum Opinion at 10.
Though the district court cited three cases and a treatise to support its holding, we believe that the Federal Rules of Civil Procedure offer the strongest support:
When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice the party in maintaining the party‘s action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.
Though Smith objected to Transworld‘s use of the bona fide error defense, the appellant failed to show that “the admission of such evidence would prejudice the party in maintaining the party‘s action ... upon the merits.” Id. In fact, after arguing that Transworld had waived the bona fide error defense, Smith fully responded to the merits of Transworld‘s defense. Because Smith failed to demonstrate prejudice (pursuant to
D.
Though Smith argues that Transworld violated
If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the
debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt.... If such notice from the consumer is made by mail, notification shall be complete upon receipt.
Though it is undisputed that Transworld‘s Columbus, Ohio, office received Smith‘s cease and desist letter before mailing its second collection letter from its California headquarters, Transworld argues that the second mailing resulted from a bona fide error. See
Because Transworld‘s procedures are “reasonably adapted to avoid any such error,”
E.
Smith next argues that Transworld violated
If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
After correctly noting that “[t]he purpose of § 1692g(b) is to require debt collecting agencies to cease collection activities if the amount has been disputed until the debt collector verifies the accuracy of the amount claimed,” District Court‘s July 23, 1990 Memorandum Opinion at 16, the district court properly found that Transworld‘s “debt collection activities ceased after defendant sent the [second] collection letter.” Id. Accordingly, the district court properly concluded that Transworld did not violate section 1692g(b):
The Court finds that defendant did follow the guidelines of
15 U.S.C. § 1692g(b) by ceasing and desisting from collection of the debt. Because defendant ceased collection activities, defendant was not obligated to send a separate validation of the debt to plaintiff. Although defendant mailed the second collection letter to plaintiff after receipt of plaintiff‘s cease and desist letter, the Court finds that it was at most a bona fide error for defendant not to respond toplaintiff‘s request for verification prior to sending the second letter....
District Court‘s July 23, 1990 Memorandum Opinion at 16-17.
Because Transworld ceased collection activities after the receipt of Smith‘s cease and desist letter, see supra (Transworld‘s second collection letter resulted from a bona fide error), Transworld did not violate the provisions of
F.
Smith next argues that Transworld misrepresented the amount of the debt in violation of
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: [t]he false representation of—the character, amount, or legal status of any debt.
At issue is the $10.00 discrepancy between the amount Smith actually owed Ryder ($446.21) and the amount Transworld sought to collect from Smith ($456.21). Though both parties agree that Ryder incorrectly listed the $456.21 figure when it referred the debt to Transworld, Smith nevertheless claims that Transworld violated
Smith argues that Transworld should have conducted an independent investigation of the Ryder debt referred to it for collection to determine the accuracy of the debt. The district court correctly determined, however, that “[t]he statute does not require an independent investigation of the debt referred for collection.” District Court‘s July 23, 1990 Memorandum Opinion at 12. Instead, the FDCPA requires “the maintenance of procedures reasonably adapted to avoid any such error.”
The documents clearly reflect the fact that it was a clerical error on the part of defendant‘s client to refer plaintiff‘s account for collection, both as to the amount alleged as well as the fact that the debt had previously been paid. The defendant‘s referral form, completed and signed by Ryder, includes specific instructions to claim only amounts legally due and owing. Plaintiff has brought forth no facts to challenge the Ortiz affidavit which supports defendant‘s claim that it is entitled to the bona fide error defense.
Because the appellee employs procedures reasonably adapted to prevent errors in amounts referred for collection, Transworld reasonably relied on the accuracy of Ryder‘s $456.21 debt figure; the resulting mistake was bona fide error pursuant to
G.
In his final assignment of error, Smith argues that the district court improperly denied his motion for leave to file an amended complaint to add a class action claim: “[Because] the substantive merits of a class claim should not be preliminarily inquired into even at the advanced stage of class certification, it [was] an error of law and/or an abuse of discretion to anticipate and decide the success of the substantive merits upon a mere request for leave to amend when a class claim has not yet even been pled or answered.” Appellant‘s Brief at 16.
The appellant misconstrues the district court‘s rationale, however. The district court did not analyze the substantive merits of Smith‘s class action claim; rather, the district court denied Smith leave to amend his complaint because Smith failed to allege facts “from which the Court could at least reasonably infer that the mandatory prerequisites of Rule 23(a) have been met.” District Court‘s January 8, 1990 Order at 4.
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
The district court correctly determined that Smith offered little more than conclusory allegations to support his proposed amendment:
Plaintiff‘s allegations that the requirements of Rule 23(a) are satisfied are founded on the assertion that defendant‘s forms are computer generated. According to plaintiff, this leads to the inference that: (1) “hundreds, if not thousands” of consumers are recipients of these forms, thus satisfying the numerosity requirement; (2) that the forms sent to the purported members of the class are all of the same “boilerplate” language, thus satisfying the requirement that there be common questions of law and fact among the class; (3) that since the purported class members must have received the same types of correspondence from the defendant and under the same circumstances as he did, his claims and defenses are typical of those of the class; and (4) “plaintiff will fairly and adequately protect the interests of the class, and he has retained competent counsel to represent the class.”
District Court‘s January 8, 1990 Order at 3-4.
Because Smith‘s proposed amendment failed to allege facts from which the district court could reasonably infer that the mandatory prerequisites of
III.
For the aforementioned reasons, we AFFIRM the district court‘s January 8, 1990 Order, and July 23, 1990 Memorandum Opinion.
KRUPANSKY, Circuit Judge, concurring in part and dissenting in part.
The panel majority has misconceived the provisions of the Fair Debt Collection Practices Act (Act),
Section 1692c of the Act prescribes discernable limits on the time and place of a collection agency‘s communication with a consumer in connection with the collection of a debt.
Under the Act, a collector may avoid liability for a violation of section 1692c(c) through the bona fide error defense:
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
As the statute indicates, the bona fide error defense is an affirmative defense. The burden is on the debt collector to prove, by a preponderance of the evidence, both a lack of intent to violate the Act and the implementation of procedures designed to avoid a violation of the Act. Pipiles v. Credit Bureau of Lockport, Inc., 886 F.2d 22, 27 (2d Cir.1989). See Baker v. G.C. Services Corp., 677 F.2d 775, 779 (9th Cir.1982) (mistakes of law insufficient to insulate error). Moreover, the bona fide error defense applies only to clerical errors. Baker, 677 F.2d at 779. See McGowan v. King, 569 F.2d 845, 849-50 (5th Cir.1978) (bona fide error defense, as interpreted under the similar Truth in Lending Act, available only for clerical errors).
The facts of the instant case reflect that Transworld mailed its initial collection letter to Smith from California on January 13, 1989. That letter directed Smith to a Columbus, Ohio response address. Smith received the letter on January 17, 1989. He promptly mailed his cease and desist letter on January 24, 1989 from Dover, Ohio to the designated Columbus address supplied by Transworld. As stipulated by the parties, Transworld received the letter on or before January 25, 1989. Accordingly, pursuant to section 1692c(c), Transworld‘s notification to cease collection activity became effective on the date it received the cease and desist letter, January 25, 1989, and it was required to immediately cease all collection activity on that day. Nonetheless, two days later, on January 27, 1989, Transworld mailed another letter to Smith, which he received on January 30, 1989.
Raymond Ortiz, the office manager of Transworld‘s Columbus, Ohio branch, stated in his affidavit that Transworld‘s procedure requires “that notice of the cease and desist demand be called in to the Transworld home office in California by the local Transworld office and that the demand be imputed to the computer and that no further collection effort be taken.” According to Ortiz, this procedure was followed since after he received Smith‘s letter, “notice of the cease and desist was given to the home office in California.” However, this notice was ineffective and, according to Ortiz, the error arose “either from a mis-direction of the stop order in the California office, or the ‘crossing in the mail’ of the stop order and the computer generated collection letter.”
Pixie Wheeler, the vice-president of administration of Transworld Systems, Inc., confirmed by affidavit that a local office must notify the California office of a cease and desist demand by telephone immediately upon its receipt. In an effort to explain the “error,” Wheeler first noted that Transworld is a national agency which mails thousands of collection letters each day. In the affidavit, she further explained Transworld‘s sophisticated, totally computerized collection program:
First, the collection request is automatically computer generated and printed at the Transworld headquarters. The date placed by the computer on the letter is about 2 days in advance of the mailing. This is because of the time involved for the letter to clear the printing, bulk stuffing, zip sorting, and mailing process to send the letter.
After the letter is printed, it is bulk folded and stuffed in an envelope with postage. The letter is then sent along with thousands of others in trays to the Shipping Department.
This company picks letters up from Transworld in the Shipping Department about twice a day and transports the trays or “flats” to its offices where the items are placed in zip code order and organized for mass bulk mailing. Once this entire process is completed, the zip sorter transports the flats of mail to the U.S. Post Office and they are mailed in bulk.
As explained above, this entire process takes approximately 1 1/2 to 2 full days. Because of the volume of letters involved each day, there is no reasonable way to withdraw a letter which has already gone into the system.
Aff. of Trixie Wheeler, ¶¶ 7-12 (emphasis added).
As is apparent from the affidavit, Transworld has designed a computerized system that automatically prints, bulk stuffs, zip sorts, and mails all collection letters. Once a debtor‘s name has been entered into the computer‘s memory bank, the computer program automatically generates the initial and all subsequent collection letters to those individuals whose names have been stored into the memory bank. Thus, once a name is entered into the computer memory bank, the collection cycle is activated and a collection letter to a specific recipient cannot be selectively aborted even though a cease and desist notice has been received and timely forwarded by a local branch to the main office unless the designated recipient‘s name had been physically deleted from the computer memory bank before the computer‘s succeeding fourteen-day collection cycle is automatically computer initiated.
However, the error in the instant action is not attributable to the fact that the name of the debtor remained in the computer program when the mailing sequence began, but rather to the fact that Ortiz, who received the cease and desist letter on January 25, either failed to immediately call the California office to stop the second letter, or, if he did call, the California office routed the stop notice to the wrong department. If he had called, or if the call had been effective, the debtor‘s name could have been physically withdrawn, on January 25, from the computerized mailing sequence from which there is, otherwise, “no reasonable way to withdraw a letter which has already gone into [it].” Thus, as the panel majority correctly notes, under the facts and circumstances of this case, the district court‘s determination that it was an unintentional, clerical error for Transworld to fail to retrieve the letter is not clearly erroneous.
Although the clerical error may have been unintentional, Transworld, nevertheless, had the additional burden of proving, by a preponderance of the evidence, that the second material element of section 1692k(c) had also been satisfied, namely, that its procedures were so designed and implemented as to avoid further communication with the debtor upon receipt of the desist notice, in order to successfully assert the bona fide error defense. However, Transworld‘s own admissions and the procedure as designed belie compliance with the requirements of the section 1692c(c) defense.2
The second collection letter in the instant case was mailed through the routine operation of Transworld‘s computerized collection system that was designed to automatically generate collection letters at fourteen-
Transworld‘s system itself has a physically insurmountable barrier to the absolute mandate of the statute to cease additional communication on the date that the desist notice is received. The system was so designed and implemented that its built-in lead time, which may be more than two days, renders it mechanically and physically impossible to withdraw a letter from the programmed mailing sequence unless the debtor‘s name has been withdrawn from the printing cycle before the subsequent mailing cycle has commenced. Thus, during the built-in lead time, Transworld was and is admittedly unable to comply with the absolute mandate of the statute and abort a collection letter from its computerized collection program even if there has been no error or delay in the transmittal of the cease and desist letter to the main office. Transworld‘s system cannot be characterized as a procedure reasonably designed to avoid violations of the Act. See, e.g., Beattie v. D.M. Collections, Inc., 754 F.Supp. 383, 389 (D.Del.1991) (agency provided staff with seminars, manual, and memorandum regarding compliance with Act; card posted at each telephone station reminding debt collectors to disclose purpose of call; failure of collector to disclose purpose of call bona fide error); Carrigan v. Central Adjustment Bureau, Inc., 494 F.Supp. 824, 825-27 (N.D.Ga.1980) (agency maintained no procedures for handling mail; collector‘s failure to see cease and desist letter and subsequent call to consumer not bona fide error).
Thus, Transworld has intentionally structured and implemented a system that defies compliance with the absolute duty mandated by section 1692c(c). Since Transworld has not and does not maintain procedures reasonably adopted to avoid mailing collection letters after having received a cease and desist letter, the bona fide error defense is not available to it and it is liable under section 1692c(c) for communicating with Smith after it had received his cease and desist letter. Thus, as a matter of law, summary judgment should not have been granted to Transworld on this issue and, although I concur in the balance of the majority opinion, I respectfully dissent from the panel majority‘s legal conclusion that Transworld‘s clerical error in failing to retrieve the collection letter constituted a bona fide error under the statutory affirmative defense of section 1692k(c) of the Act.