MICHAEL KAISER; MARGARET J. LOEWEN, on behalf of themselves and others similarly situated, Plaintiffs-Appellants, v. CASCADE CAPITAL, LLC; GORDON, AYLWORTH & TAMI P.C., Defendants-Appellees.
No. 19-35151
United States Court of Appeals for the Ninth Circuit
March 9, 2021
D.C. No. 3:16-cv-00744-AC. Argued and Submitted November 16, 2020 Seattle, Washington. Opinion by Judge Friedland.
FOR PUBLICATION
Appeal from the United States District Court for the District of Oregon Michael W. Mosman, District Judge, Presiding
Before: Ronald M. Gould and Michelle T. Friedland, Circuit Judges, and Stephen R. Bough,*
SUMMARY**
Fair Debt Collection Practices Act
The panel reversed the district court‘s dismissal for failure to state a claim and remanded for further proceedings in plaintiff‘s action alleging that defendants violated the Fair Debt Collection Practices Act (“FDCPA“) by sending a collection letter threatening litigation over time-barred debt and filing a lawsuit seeking to collect time-barred debt.
Joining other circuits, the panel held that the FDCPA рrohibits filing or threatening to file a lawsuit to collect debts that were defaulted on so long ago that a suit would be outside the applicable statute of limitations. The panel held that these prohibitions regarding time-barred debts apply even if it was unclear at the time a debt collector sued or threatened suit whether a lawsuit was time barred under state law. The panel concluded that plaintiff‘s debt was time barred under Oregon‘s four-year statute of limitations. Accordingly, plaintiff‘s complaint stated a claim for relief under the FDCPA.
The panel emphasized, however, that debt collectors can avoid liability by successfully asserting the FDCPA‘s affirmative defense for bona fide еrrors. The panel held that a mistake about the time-barred status of a debt under state law could be such an error. The panel left it to the district court to consider in the first instance whether a bona fide error defense, if raised on remand, could succeed in this case.
COUNSEL
Mark G. Passannante (argued), Broer & Passannante PS, Portland, Oregon; Bret Knewtson, Hillsboro, Oregon; for Plaintiffs-Appellants.
Kelly F. Huedepohl (argued), Gordon Rees Scully Mansukhani, LLP, Portland, Oregon, for Defendants-Appellees.
OPINION
FRIEDLAND, Circuit Judge:
The Fair Debt Collection Practices Act (“FDCPA“) prohibits debt collection practices that are misleading, unfair, or unconscionable. Those prohibited practices include filing or threatening to file a lawsuit to collеct debts that were defaulted on so long ago that a suit would be outside the applicable statute of limitations. The parties ask us to decide whether the FDCPA‘s prohibitions regarding such “time-barred debts” apply even if it was unclear at the time a debt collector sued or threatened suit whether a lawsuit was time barred under state law.
We hold that they do. The FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, so a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct. Beсause the district court held the opposite, we reverse and remand for further proceedings.
We emphasize, however, that debt collectors could avoid liability by successfully asserting the statute‘s affirmative defense for bona fide errors. A mistake about the
I.
Plaintiff Michael Kaiser purchased a car under a retail installment sale contract.1 He defaulted on his payments, and his car was repossessed and sold. The proceeds from the sale failed to cover the outstanding balance under the contract, and Kaiser did not pay the remaining amount due. Years later, the creditor, Defendant Cascade Capital, LLC, sought to collect that deficiency balance. It hired a law firm, Defendant Gordon, Aylworth & Tami, P.C. (“GAT“), to represent it. GAT sent Kaiser a letter that stated the firm “ha[d] been retained with the authority to file a lawsuit” against him and demanded payment of the outstanding debt.2 Kaiser failed to pay, and Defendants (collectively, “Cascade“) sued him in Oregon state court.
The collection attempts—both the letter and the lawsuit—occurred between four and six years after Kaiser‘s default. Kaiser responded to Cascade‘s state court lawsuit by arguing that the debt was time barred under Oregon‘s four-year statute of limitations for sale-of-goods contract claims,
Kaiser then filed this putative class action in the United States District Court for the District of Oregon.3 He alleged that Cascade violated the FDCPA by threatening litigation over time-barred debt in its collection letter and by filing a lawsuit to collect time-barred debt. The district court dismissed for failure to state a claim, reasoning in part that Cascade did not violate the FDCPA because the state statute of limitations had been unclear when Cascade attempted to collect the debt.4 Kaiser timely appealed.
II.
We review de novo an order granting a motion to dismiss, taking all factual allegations as true. Naruto v. Slater, 888 F.3d 418, 421 (9th Cir. 2018). We also review de novo a district court‘s interpretation of a federal statute. United States v. Pacheco, 977 F.3d 764, 767 (9th Cir. 2020).
When the application of a federal statute depends on state law, “federal authorities must apply what they find to be the state law.” Comm‘r v. Bosch‘s Est., 387 U.S. 456, 465 (1967). Absent controlling precedent from the state supreme court, a federal court must “predict how the highest state court would decide the [state law] issue
III.
A.
We first address whether Kaiser‘s debt was time barred under Oregon law. The status of the debt turns on which statute of limitations would govern a lаwsuit to collect the debt. The applicable statute of limitations depends on whether a lawsuit to recover the deficiency balance on Kaiser‘s retail installment contract would more closely relate to the portion of the contract for the underlying sale of the car or the portion of the contract creating the security interest in the car. If the lawsuit would more closely relate to the sale portion, then a four-year statute of limitations would apply; otherwise, a six-year statute of limitations would. Compare
The Oregon Supreme Court has made a statement in passing that helps inform this decision: “[A]n action [by a creditor] for part of the purchase price is more closely related to the sale portion of the contract than it is to the security portion.” Chaney v. Fields Chevrolet Co., 503 P.2d 1239, 1241 (Or. 1972); see also 68A Am. Jur. 2d Secured Transactions § 565, Westlaw (database updated Feb. 2021) (“[T]he action of the creditor to recover a deficiency judgment from a credit buyer of goods is in substance an action to recover the balance of the purchase price and is therefore subject to the statute of limitations applicable to such actions.“). Because no subsequent authority contradicts or casts doubt on that statement in Chaney, we predict that the Oregon Supreme Court would hold that the four-year statute of limitations would apply to a suit to collect on Kaiser‘s debt.6
Two other considerations support this prediction. First, the four-year statute of limitations for breaches of contract for a sale of goods originated from Oregon‘s codification of Article 2 of the Uniform Commercial Code (“U.C.C.“). See
Second, our prediction aligns with Oregon‘s preference for interstate uniformity when interpreting the U.C.C. See
Accordingly, we proceed on the understanding that Kaiser‘s debt was time barred at the time Cascade attempted to collect it.
B.
We now address the legality of Cascade‘s conduct under the FDCPA given that the debt was time barred. We join our sister circuits in holding that attempts to collect on time-barred debt through a lawsuit or threat of suit violate the FDCPA. Whether Cascade may have been unsure of the legal status of the debt under Oregon state law does not affect this conclusion—though, as we explain, it affects Cascade‘s ability to assert a bona fide error defense to liability.
1.
The FDCPA prohibits debt collectors from using any “unfair or unconsciоnable means to collect or attempt to collect any debt.”
Suing to collect on an unenforceable debt is patently unfair to the consumer. Empirical evidence gathered by the Federal Trade Commission indicates that the vast majority of suits on time-barred debt will lead to default judgments, even though the debts are unenforceable, “because 90% or more of consumers sued in these actions do not appear in court to defend.” Fed. Trade Comm‘n, The Structure and Practices
Both suing and threatening to sue on time-barred debts also misrepresent the legal enforceability of those debts, and thus are false or misleading under
This conclusion is consistent with our opinion in Stimpson v. Midland Credit Management, Inc., 944 F.3d 1190 (9th Cir. 2019). In Stimpson, a debt collector sent a collection letter regarding a time-barred debt, but the letter disclosed the time bar, thereby eliminating any implicit representation of legal enforceability. See id. at 1196. We held that “[t]he natural conclusion [from the disclosure in the letter] is that the debt is time barred. Nothing in the letter falsely implies that [the debt collector] could bring a legal action against Stimpson to collect the debt.” Id. at 1197. As Cascade points out, we did explain that “there is nothing inherently deceptive or misleading in attempting to collect a valid, outstanding debt, even if it is unenforceable in court.” Id. at 1200. But that explanation did not address letters that fail to reveal that a debt is time barred. Indeed, we distinguished the effective disclosure in Stimpson from hypothetical language that “could falsely imply that the underlying debt is enforceable in court.” Id. at 1197. Stimpson thus supрorts the rule that if a debt collector‘s letter falsely represents, even by implication, that a debt is legally enforceable, it violates the FDCPA.10
Cascade argues that unless a debt collector “‘knew or should have known’ that the litigation was time barred,” its filing of litigation or threatening litigation cannot violate the FDCPA. It further argues that, because of the uncertainty it perceived about which statute of limitations applied to Kaiser‘s debt, it could not have known the debt was time barred, and thus its collection efforts did not violate the FDCPA. We reject this argument.
The FDCPA makes debt collectors strictly liable for misleading and unfair debt collection practices. Clark v. Cap. Credit & Collection Servs., Inc., 460 F.3d 1162, 1175-76 (9th Cir. 2006).11 A “knew or should have known” standard would create a scienter element for a violation, which is incompatible with strict liability. S.E.C. v. CMKM Diamonds, Inc., 729 F.3d 1248, 1256 (9th Cir. 2013) (rejecting a proposed “knew or should have known” standard in the context of strict liability under the Securities Act of 1933). As a result, the plain text of the FDCPA cannot support a “knew or should have known” standard.
Cascade makes three principal arguments to the contrary, none of which persuades us.12 First, Cascade invokes a notice of proposed rulemaking by the Consumer Financial Protection Bureau (“CFPB“) regarding time-barred debt. The CFPB‘s proposed regulation would have prohibited suing or threatening to sue on time-barred debt “only if the debt collector knows or should know that the applicable statute of limitations has expired.” Debt Collection Practices (Regulation F), 84 Fed. Reg. 23,274, 23,329 (proposed May 21, 2019).
The CFPB recently issued a final rule on this subject, however, which adopts a strict liability approach instead. Debt Collection Practices (Regulation F), 86 Fed. Reg. 5766, 5781 (Jan. 19, 2021) (“The Bureau is not finalizing the proposed knows-or-should-know standard and is instead finalizing a strict liability standard.“). The final rule concludes, as we have, that the text of the FDCPA and existing caselaw support a strict liability standard.
Third, Cascade suggests that because its litigation conduct was not sanctionable under the rules of civil procedure, it did not violate the FDCPA. Precedent also forecloses this argument. In McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939 (9th Cir. 2011), we held that litigation conduct can sometimes violate the FDCPA even without a violation of the rules of civil procedure, let alone a sanctionable violation of those rules. Id. at 951. Whether Cascade‘s conduct would be sanctionable is thus irrelevant.
3.
These principles dictate that Kaiser‘s operative Complaint stated a claim for relief under the FDCPA. Kaiser alleged that Cascade filed litigation to collect on a time-barred debt, which supports a claim for a violation of both the FDCPA‘s prohibition on misleading debt collection practicеs and its prohibition on unfair debt collection practices.
Evaluating the language in Cascade‘s collection letter, we also conclude that Kaiser has also stated a claim for relief by alleging that the letter threatened to sue on the time-barred debt, and thereby made a false or misleading statement in violation of
We interpret communications from debt collectors, as a matter of law, through the eyes of the “least sophisticated debtor.” Id. at 1061. The least sophisticated debtor has “below average sophistication or intelligence,” but possesses “a basic level of understanding and willingness to read with care.” Id. at 1062 (first quoting Duffy v. Landberg, 215 F.3d 871, 874 (8th Cir. 2000); then quoting Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008)). A plaintiff cannot prevail by asserting a “bizarre” or “idiosyncratic” interpretation. Id.
Two aspects of Cascade‘s letter persuade us that the least sophisticated debtor would read the letter as threatening to sue. First, the letter opens by stating that “[GAT] ha[d] been retained with the authority to file a lawsuit against [Kaiser] for a debt owed ... to Cascade.” That representation clearly contemplates the possibility of litigation to collect on the balance of the debt; otherwise, there would no reason to grant the firm “the authority to file a lawsuit.” See, e.g., United States v. Nat‘l Fin. Servs., Inc., 98 F.3d 131, 137 (4th Cir. 1996) (rejecting a debt collector‘s argument distinguishing between a statement that “a suit ‘will be’ filed” and a statement that the attorney had “the authority to do so“). Second, the letter asserts that interest will not accrue on Kaiser‘s debt “unless and until so ordered by a court of competent jurisdiction.” To the least sophisticated debtor, “the phrase ... suggests that, under some set of circumstances applicable to the recipient,” a court could order interest to accrue on the unpaid balance. Gonzales, 660 F.3d at 1063.
Cascade emphasizes the letter‘s statement that “no attorney has personally reviewed the particular circumstances of [Kaiser‘s] account,” but we do not believe this disclaimer dispels the letter‘s implied threat of litigation. This boilerplate language, known as a Greco disclaimer, is primarily relevant to the FDCPA‘s separate prohibition on “[t]he false representation or implication that any individual is an attorney or that any communication is from an attorney.”
C.
Cascade may nonetheless be able to avoid liability through the FDCPA‘s affirmative defense for bona fide errors. To successfully invoke the defense, a debt collector must “show[] by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding thе maintenance of procedures reasonably adapted to avoid any such error.”
1.
We have previously held, in a case involving a mistake of law about the FDCPA‘s own requirements, that such “a mistake about the law is insufficient by itself to raise the bona fide error defense.” Baker v. G.C. Servs. Corp., 677 F.2d 775, 779 (9th Cir. 1982). That question is analytically distinct, however, from whether a mistake about the statute of limitations that applies to the debt under state law could support a bona fide error defense.
2.
Instead, our analysis is guided by the Supreme Court‘s decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010). In Jerman, the Supreme Court adopted the rule announced in Baker that mistakes about the meaning of the FDCPA itself cannot be bona fide errors. Id. at 604-05. Although the Court expressly declined to decide whether the defense could encompass mistakes of state law, id. at 580 n.4, its reasoning is informative here.14
The Court offered three principal reasons for excluding mistakes about the FDCPA‘s meaning from the bona fide error defense: (1) background legal principles regarding mens rea; (2) the statutory text; and (3) coherence with another safe-harbor provision in the FDCPA. Considering each, we conclude that mistakes about the status of a debt under a state statute of limitations are substantively different from mistakes about the requirеments of the FDCPA itself and therefore can be bona fide errors.
First, Jerman relied on the presumption that “ignorance of the law will not excuse any person, either civilly or criminally.” Id. at 581 (quoting Barlow v. United States, 32 U.S. (7 Pet.) 404, 411 (1833)). “This maxim ... normally applies where a defendant has the requisite mental state in respect to the elements of the crime but claims to be ‘unaware of the existence of a statute proscribing his conduct.‘” Rehaif v. United States, 139 S. Ct. 2191, 2198 (2019) (quoting 1 Wayne R. LaFave & Austin W. Scott, Jr., Substantive Criminal Law § 5.1(a) (1986)). In Jerman, for example, the debt collector‘s mistake was as to the requirements of the very law it had violated; hence, the Court held that this “mistaken interpretation of the legal requirements of the FDCPA” could not support a bona fide error defense. 559 U.S. at 577.
By contrast, the ignorance-of-the-law “maxim does not normally apply where a defendant ‘has a mistaken impression concerning the legal effect of some collateral matter and that mistake results in his misunderstanding the full significance of his conduct.‘” Rehaif, 139 S. Ct. at 2198 (quoting 1 LaFave & Scott, Substantive Criminal Law § 5.1(a)). In such cases, “where the defendant is ignorant of an independently determined legal status or condition that is one of the operative facts of the crime ... the mistake of the law is for practical purposes a mistake of fact.” United States v. Fierros, 692 F.2d 1291, 1294 (9th Cir. 1982); see also United States v. Currier, 621 F.2d 7, 9 n.1 (1st Cir. 1980) (describing earlier cases in which “an apparent ‘mistake of law’ was actually a ‘mistake of fact’ [and therefore could be asserted as a defense] in that the mistake pertained to a question of status which was determined by a law other than the one under which the defendant was prosecuted“). Thus, when a crime has a
Cascade has allegedly violated the prohibition against misrepresenting the legal enforceability of the debt,
As we have explained, the FDCPA offenses at issue lack a mens rea requirement because the statute imposes strict liability. But the bona fide error defense is the statute‘s “narrow exception to strict liability.” Clark, 460 F.3d at 1177. It relieves liability for certain “unintentional” violations, thereby functioning similarly to a mens rea requirement. See Vangorden v. Second Round, Ltd. P‘ship, 897 F.3d 433, 441 n.5 (2d Cir. 2018) (explaining that a dispute over mens rea is appropriately considered through the bona fide error defense). These background legal principles therefore suggest the defense should be available for mistakes about the time-barred status of the debt.
Second, Jerman observed that nothing in the FDCPA‘s text explicitly immunizes a debt collector from a mistake of law, and that Congress has not “expressly included mistakes of law in any of the numerous bona fide error defenses” using similar wording “elsewhere in the U.S. Code.” 559 U.S. at 583-86, 593 (emphasis omitted). The Court further reasoned that the statute‘s use of the phrase “procedures reasonably adapted to avoid any such error” is “more naturally read tо apply to processes that have mechanical or other such ‘regular orderly’ steps to avoid ... errors like clerical or factual mistakes.” Id. at 587. These observations, standing alone, might suggest that mistakes about a debt‘s legal status cannot be bona fide errors.
But, as we have explained, a mistake about the time-barred status of a debt is a mistake regarding a collateral legal element of an offense, which we treat as a mistake of fact. See Rehaif, 139 S. Ct. at 2198; Fierros, 692 F.2d at 1294. And unlike the FDCPA itself, state statutes of limitations are not “comprehensive and complex federal statute[s] ... that impose[] open-ended prohibitions.” Id. As a result, debt collectors are likely more able to apply “regular orderly” processes to determine the applicable statute of limitations and “maintain procedures to avoid legal errors,” because the required legal reasoning is more often “mechanical or strictly linear” than the legal reasoning involved in interpreting the FDCPA. Id. Interpreting the FDCPA‘s bona fide error defense to include mistakes about the time-barred status of a debt is thus consistent with the statutory text.
Finally, Jerman relied on the fact that the FDCPA contains a safe-harbor provision for debt collectors that act in good faith in conformity with an advisory opinion by the federal agency responsible for FDCPA enforcement. Id. at 588 (citing
Accordingly, we conclude that mistakes about the time-barred status of a debt can be bona fide errors.
IV.
Because we conclude that Kaiser has stated a claim for relief under the FDCPA, we reverse the district court‘s dismissal of this action. On remand, Cascade may attempt to invoke the bona fide error defense. We express no opinion on its likelihood of success on such a defense.
REVERSED AND REMANDED.
APPENDIX
GORDON, AYLWORTH & TAMI, P.C. ATTORNEYS AT LAW Formerly Daniel N. Gordon, P.C.
4023 W 1st Avenue P.O. Box 22338 Eugene, OR 97402 Tel: 541-342-2276 Toll Free: 800-311-8566 Fax: 541-343-8059 email: info@gatlawfirm.com
Attorneys and Jurisdictions Daniel N. Gordon* ID, OR, WA *Retired Matthew R. Aylworth ID, OR, WA Eleanor Tami ID, OR, WA Jessica A. Smith OR
Michael D Kaiser [Address Redacted]
July 15, 2015
Our Reference No. 6011337778 Original Account No. [Redacted]
Dear Michael D Kaiser:
This firm has been retained with the authority to file a lawsuit against you for a debt owed by you to CASCADE CAPITAL LLC SERIES A, purchaser of your Citi-Serv / Santander Consumer USA Inc. debt. At this time, no attorney has personally reviewed the particular circumstances of your account.
Demand is hereby made upon you for payment in the sum of $5,704.40, which is the amount due on your original obligation at the time it was received for collection in our office. No interest will accrue on this amount unless and until so ordered by a court of competent jurisdiction.
Unless you notify this office within thirty days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you do notify this office within thirty days from receiving this notice, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a coрy of such judgment or verification. If you request to this office within thirty days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.
This communication is from a debt collector. This is an attempt to collect a debt, and any information obtained will be used for that purpose.
Sincerely, Gordon, Aylworth & Tami, P.C.