Alice Ruth v. Triumph Partnerships

In the

United States Court of Appeals

For the Seventh Circuit

No. 08-3458

A LICE A. R UTH and M ARYLOU H AHN,

Plaintiffs-Appellants,

v.

T RIUMPH P ARTNERSHIPS, et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Western Division.

No. 3:06-cv-50042—Frederick J. Kapala, Judge.

A RGUED M AY 5, 2009—D ECIDED A UGUST 17, 2009

Before R IPPLE AND S YKES, Circuit Judges, and L AWRENCE,

District Judge.Œ

R IPPLE, Circuit Judge. Alice A. Ruth and Marylou Hahn

brought this class action in the United States District Court

Œ

The Honorable William T. Lawrence, United States District

Judge for the Southern District of Indiana, is sitting by designa-

tion.

2 No. 08-3458

for the Northern District of Illinois against Triumph

Partnerships, LLC, and Triumph Asset Services, alleging

violations of the Fair Debt Collection Practices Act, 15

U.S.C. § 1692 et seq. The district court certified the class

on January 8, 2008. The parties filed cross-motions for

summary judgment. The court initially denied the

motions, but later reconsidered its earlier decision and

granted summary judgment to the defendants.

Ms. Ruth and Ms. Hahn now appeal; they contend that

the district court erred in granting summary judgment

to the defendants and in failing to grant summary judg-

ment to them. For the reasons set forth in this opinion,

we now reverse the district court’s judgment and

remand with instructions to enter judgment in favor of

the plaintiffs.

I

BACKGROUND

A.

Defendant Triumph Partnerships is a company that

purchases defaulted debts and attempts to recover them.

Defendant Allied International Credit Corporation, doing

business as Triumph Asset Services (“TAS”), is a debt

collection agency. Both of these entities are indepen-

dently operated subsidiaries of the same parent com-

pany, Allied Global Holdings.

The plaintiff class, represented by Alice A. Ruth and

Marylou Hahn (collectively “Ms. Ruth” or “plaintiffs”),

No. 08-3458 3

consists of individuals who owed debts purchased by

Triumph Partnerships. Triumph Partnerships hired TAS

to collect these debts.

In January 2006, TAS sent a letter to each plaintiff. The

first sentence of the letter, which was titled “Notification

of Assignment,” stated: “TRIUMPH PARTNERSHIPS

LLP recently purchased your [credit card] account and

Triumph Asset Services (‘TAS’), a debt collection com-

pany, is the servicer of this obligation.” R.1, Ex. A. The

letter then listed the amount owed and stated: “As the

new owner of this account, we have authorized TAS to

work with you to find a positive resolution to this out-

standing debt. Once TAS receives your payment of

[amount], we will notify the credit bureaus that the debt

is ‘Paid’ and immediately stop all recovery activity on

this account.” Id. The letter also stated: “Please under-

stand that this is a communication from a debt collector.

This is an attempt to collect a debt. Any information

obtained will be used for that purpose.” Id.

In the same envelope as the collection letter was a

second document, titled “Privacy Notice of Financial

Information From Triumph Partnerships LLC (’TPLLC’)

and its affiliates” (the “notice”). Id. The notice, which

stated that it was “sent on behalf of TPLLC and its

affiliate: Triumph Asset Services,” also stated the follow-

ing:

What Information Do we collect and share?

To the extent permitted by law, we may collect

and/or share all the information we obtain in

servicing your account. We collect information

4 No. 08-3458

about you to service your account with the highest

quality.

....

We may share information about you (whether you

are a customer or former customer) to the following

third parties:

! Non-financial companies, such as direct market-

ers or retailers financial service companies (like

banks, mortgage lenders, and organizations

with which we have a joint marketing agree-

ments [sic])

! Non-financial companies, such as direct market-

ers or retailers as outlined below in the OPT-

OUT NOTICE section, you may tell us not to

share information about you with outside com-

panies. However, that choice will not affect

sharing: with credit reporting agencies, with

third party collection agencies, with attorneys,

with companies that process financial products,

in connection with the sale of debt portfolios,

and to respond to legal subpoenas and other

legal process.

....

OPT-OUT NOTICE

You have the option of directing us NOT to disclose

your information with outside companies (other than

those disclosures permitted by law). If you prefer

that we do not disclose nonpublic personal informa-

No. 08-3458 5

tion about you to nonaffiliated third parties, please

fill out the Opt-Out Response Form on the reverse

side . . . .

Id. The language of the notice was chosen by Richard Arko,

Triumph Partnerships’ vice president, who selected the

letter from samples provided by a letter vendor. After

selecting this language, Arko sent it to TAS’ compliance

office for review. TAS returned the notice, altered

in form but unchanged in substance, about three weeks

later.

B.

Beginning in January 2006, TAS sent an envelope con-

taining a collection letter and a copy of the notice to each

of the plaintiffs. In March 2006, Ms. Ruth filed this

action in the United States District Court for the

Northern District of Illinois. She alleged that by sending

the notice, the defendants had violated the Fair Debt

Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692e.

The parties filed cross-motions for summary judg-

ment. Ms. Ruth contended that the notice violated the

FDCPA because it made a false statement in connection

with the collection of a debt and threatened illegal action.

She claimed that the notice falsely stated that the defen-

dants, by law, could disclose certain nonpublic informa-

tion about the debtor without the debtor’s permission,

and would do so unless the debtor expressly “opted out.”

Ms. Ruth submitted that these statements were false

and constituted a threat to take illegal action because

6 No. 08-3458

the FDCPA prohibits debt collectors from sharing

nonpublic information about a debtor without the

debtor’s explicit consent.

The defendants argued that they were entitled to sum-

mary judgment because the notice was not sent in con-

nection with the collection of a debt. They claimed that

the notice was sent “not for the purpose of collecting the

debt but in order to satisfy Triumph Partnerships’ ob-

ligations under the [Gramm-Leach-Bliley Act].” 1 The

defendants also argued that even if the notice was a com-

munication in connection with collection of a debt, it did

not run afoul of section 1692e because it did not make

any false or misleading statement. Moreover, even if

the notice was a false or misleading communication in

connection with collection of a debt, the defendants

argued that they were shielded from liability by the

FDCPA’s “bona fide error defense,” which provides that

debt collectors are not liable for FDCPA violations that

were “not intentional and resulted from a bona fide

error notwithstanding the maintenance of procedures

reasonably adapted to avoid any such error.” 15 U.S.C.

§ 1692k(c). Triumph Partnerships further argued that it

was not a “debt collector” as defined in the FDCPA and

that the statute’s restrictions therefore did not apply to it.

On January 22, 2008, the district court denied both

parties’ motions for summary judgment. The court began

1

The Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338

(1999), is a federal statute that, among other things, requires

financial institutions to send a privacy notice whenever a

new consumer relationship is established.

No. 08-3458 7

by holding that Triumph Partnerships was a debt

collector under the FDCPA. The court then rejected the

defendants’ other arguments because it concluded that

there were disputed issues of material fact as to whether,

when viewed from the perspective of an “unsophisticated

consumer,” the notice: (1) was a communication in con-

nection with the collection of a debt and (2) threatened to

take illegal action.2 The court held that a reasonable jury

2

The district court in its decision, and the parties in their

arguments before us, treat Ms. Ruth’s two claims—that

the notice is a “threat to take . . . action that cannot legally be

taken or that is not intended to be taken” in violation of

15 U.S.C. § 1692e(5), and that it is also “a false representation or

deceptive means to collect or attempt to collect [a] debt” in

violation of 15 U.S.C. § 1692e(10)—somewhat interchangeably.

This is appropriate in this case, because the two claims stand

or fall together: if the notice does falsely or deceptively claim a

right to share the plaintiffs’ information without their consent,

then it is also a threat to take illegal action; if the notice is not

false or misleading, then it is not such a threat.

In any event, the FDCPA does not require Ms. Ruth to prove

that the notice violated any particular subpart of section 1692e.

The statute requires only that she prove that it was a “false,

deceptive, or misleading misrepresentation or means in con-

nection with the collection of any debt.” 15 U.S.C. § 1692e.

Sections 1592e(5) and (10) are simply items in a non-exclusive

list of examples of ways in which the statute can be violated.

See id.; Nielsen v. Dickerson, 307 F.3d 623, 634 (7th Cir. 2002)

(“The FDCPA broadly prohibits a debt collector from using

‘any false, deceptive, or misleading representation or means

(continued...)

8 No. 08-3458

could conclude that the notice was a communication in

connection with collection of a debt because it was the

only other document in the envelope with the collection

letter, both documents contained the same Triumph logo,

and both documents were worded as though they had

been written by Triumph Partnerships. The court also

rejected the defendants’ argument that the bona fide error

defense entitled them to summary judgment. The court

concluded that the evidence, when reviewed in the light

most favorable to Ms. Ruth, was not sufficient to allow it

to conclude that the defendants were entitled to the

defense as a matter of law.

The district court also denied Ms. Ruth’s motion for

summary judgment. The court held that, although there

was enough evidence to support a jury’s finding that the

notice violated the FDCPA, the evidence was not suf-

ficient to allow the court to find a violation as a matter

of law.

Shortly before the trial was scheduled to begin, the

district court reconsidered its decision on summary

2

(...continued)

in connection with the collection of any debt.’ The statute

proceeds to identify sixteen, nonexclusive instances of conduct

that would constitute a violation of this prohibition.”); Mattson

v. U.S. W. Commc’ns, Inc., 967 F.2d 259, 260 (8th Cir. 1992)

(“Section 1692e then sets out a non-exclusive list of sixteen

specific violations of the FDCPA.”); Pipiles v. Credit Bureau of

Lockport, Inc., 886 F.2d 22, 24 (2d Cir. 1989) (“The sixteen

subsections of section 1692e detail nonexclusive specifications

of this general prohibition.”).

No. 08-3458 9

judgment. It asked the parties to submit briefs addressing

whether the case law of this circuit required Ms. Ruth to

present extrinsic evidence to prove that the unsophisti-

cated debtor: (1) would view the notice as a communica-

tion in connection with collection of a debt and (2) would

interpret the notice as a threat to take illegal action.

After considering the parties’ briefs, the court concluded

that Ms. Ruth could not prevail on her claim without

presenting extrinsic evidence on these two points. Be-

cause she had not introduced any such extrinsic

evidence, the court granted summary judgment to the

defendants. Ms. Ruth now appeals that decision.

II

DISCUSSION

We review a district court’s grant or denial of summary

judgment de novo. Belcher v. Norton, 497 F.3d 742, 747 (7th

Cir. 2007).

Ms. Ruth raises five points of error on appeal, but these

really boil down to two arguments. First, she argues that

the court erred in granting summary judgment to the

defendants rather than to her because it concluded that

she was required to produce extrinsic evidence that the

notice was sent in connection with the collection of a debt

and that the notice threatened illegal action. Second, she

argues that the district court should have entered sum-

mary judgment in her favor on the defendants’

bona fide error defense. We shall consider these points in

due course. Before we turn to Ms. Ruth’s arguments,

10 No. 08-3458

however, we must address an argument by Triumph

Partnerships that it is not subject to FDCPA liability at all.

A.

Triumph Partnerships submits that, even if the mailing

did run afoul of the FDCPA, Ms. Ruth nevertheless has

no cause of action against it because the FDCPA does not

apply to it. The FDCPA regulates only the conduct of “debt

collectors,” and Triumph Partnerships submits that it

is not a debt collector as that term is defined by the

FDCPA. Section 1692a(6) defines a “debt collector” as

follows:

The term “debt collector” means any person who uses

any instrumentality of interstate commerce or the

mails in any business the principal purpose of which

is the collection of any debts, or who regularly

collects or attempts to collect, directly or indirectly,

debts owed or due or asserted to be owed or due

another. 15 U.S.C. § 1692a(6). Section 1692a(4) defines

a “creditor” as “any person who offers or extends

credit creating a debt or to whom a debt is owed, but

such term does not include any person to the extent

that he receives an assignment or transfer of a debt

in default solely for the purpose of facilitating collec-

tion of such debt for another.” 15 U.S.C. § 1692a(4).

Triumph Partnerships submits that “it is a creditor and

not a debt collector because it purchases delinquent debt

thereby becoming one ‘to whom a debt is owed’ under

§ 1692a(4).” Appellees’ Br. 27. It contends that it does not

No. 08-3458 11

fit the statutory definition of a debt collector because it

does not collect debts; rather, it purchases debts and

then hires others to collect them. The district court con-

sidered this argument and rejected it. Triumph Partner-

ships contends that the district court erred in doing so.

Ms. Ruth responds by suggesting that Triumph Partner-

ships cannot make this argument because it did not file

a cross-appeal. We cannot accept this view. “We may

affirm summary judgment on any basis supported in

the record.” Klebanowski v. Sheahan, 540 F.3d 633, 639

(7th Cir. 2008) (citing Holmes v. Vill. of Hoffman Estates, 511

F.3d 673, 681 (7th Cir. 2007)); see also Morley Const. Co. v.

Md. Cas. Co., 300 U.S. 185, 191 (1937) (“Without a cross-

appeal, an appellee may ‘urge in support of a decree

any matter appearing in the record, although his argu-

ment may involve an attack upon the reasoning of the

lower court or an insistence upon matter overlooked or

ignored by it.’ ” (quoting United States v. Am. Ry. Express

Co., 265 U.S. 425, 435 (1924))).

On the merits, Ms. Ruth contends that the district

court was correct to hold that Triumph Partnerships is a

debt collector under the FDCPA. Relying on our decisions

in McKinney v. Cadleway Properties, 548 F.3d 496, 501 (7th

Cir. 2008), and Schlosser v. Fairbanks Capital Corp., 323

F.3d 534, 539 (7th Cir. 2003), she submits that “[t]he

purchaser of a debt in default who undertakes directly

or indirectly to collect the debt is a debt collector.”

Reply Br. 20.

Triumph Partnerships’ argument is foreclosed by our

precedents. The FDCPA distinguishes between debt

12 No. 08-3458

collectors, who are subject to the statute’s requirements,

and creditors, who are not. “For purposes of applying the

Act to a particular debt, these two categories . . . are

mutually exclusive.” Schlosser, 323 F.3d at 536. Where, as

here, the party seeking to collect a debt did not originate

it but instead acquired it from another party, we have

held that the party’s status under the FDCPA turns on

whether the debt was in default at the time it was ac-

quired. See McKinney, 548 F.3d at 501; Schlosser, 323

F.3d at 538-39. We based this interpretation on the lan-

guage of the statute, which excludes from its definition

of “creditor” those who acquire and seek to collect a

“debt in default,” 15 U.S.C. § 1692a(4), and excludes

from its definition of “debt collector” those who seek to

collect a debt “which was not in default at the time it

was obtained,” id. § 1692a(6)(F).

We also found support for this distinction in the

rationale behind Congress’ decision to treat the originator

of a debt obligation differently from a party whose

only interest is in the collection of a debt that already

has fallen into default. We explained this rationale in

Schlosser:

Creditors, “who generally are restrained by the desire

to protect their good will when collecting past due

accounts,” S. Rep. 95-382, at 2 (1977), reprinted in 1977

U.S.C.C.A.N. 1695, 1696, are not covered by the Act.

Instead, the Act is aimed at debt collectors, who may

have “no future contact with the consumer and often

are unconcerned with the consumer’s opinion of

them.”

No. 08-3458 13

Schlosser, 323 F.3d at 536. The purchaser of an already-

defaulted debt—like the debt collector, and unlike the

originator and servicer of a non-defaulted debt—has no

ongoing relationship with the debtor and, therefore, no

incentive to engender good will by treating the debtor

with honesty and respect. Accordingly, we have held that a

party that seeks to collect on a debt that was in default

when acquired is a debt collector under the FDCPA, “even

though it owns the debt and is collecting for itself.”

McKinney, 548 F.3d at 501 (citing Schlosser, 323 F.3d at 538-

39).

Triumph Partnerships does not dispute that the debts

at issue in this case already were in default when it ac-

quired them. Thus, Schlosser and McKinney compel the

conclusion that Triumph Partnerships is a debt collector

under the FDCPA and is, therefore, subject to its provi-

sions.

Triumph Partnerships maintains that it should not be

considered a debt collector in this case because it “took

no . . . action” to collect the debts at issue in this case.

Appellees’ Br. 28. It points out that it “did not draft,

authorize, or send the collection letter at issue in this

lawsuit.” Id. Responsibility for drafting the letter, how-

ever, is irrelevant. Ms. Ruth does not take issue with

the collection letter itself; rather, she alleges that the

notice, which was sent in the same envelope as the

letter, falsely or deceptively claimed that the defendants

had the right to disclose the plaintiffs’ personal informa-

tion without their permission. Triumph Partnerships

admits that it drafted the notice and directed TAS to

14 No. 08-3458

include it in the mailing with the collection letter. If, as

Ms. Ruth alleges, the notice was sent “in connection with”

an attempt to collect a debt—a question we shall

address below—then Triumph Partnerships’ control over

its drafting and mailing plainly constituted affirmative

conduct with regard to collecting a debt.

B.

We turn next to Ms. Ruth’s arguments on appeal.

Ms. Ruth contends that the district court should have

denied the defendants’ motion for summary judgment

and instead granted summary judgment to her. She

argues that, as a matter of law, the mailing at issue in

this case violated section 1692e. Section 1692e provides

that “[a] debt collector may not use any false, deceptive,

or misleading representation or means in connection

with the collection of any debt.” 15 U.S.C. § 1692e. The

FDCPA specifically prohibits debt collectors from

making a “threat to take any action that cannot legally be

taken or that is not intended to be taken.” Id. § 1692e(5).

The statute also proscribes “[t]he use of any false rep-

resentation or deceptive means to collect or attempt to

collect any debt or to obtain any information concerning

a consumer.” Id. § 1692e(10).

The district court granted summary judgment for the

defendants in part because it read this court’s decisions

to require a plaintiff who attacks a collection notice

under the FDCPA to present extrinsic survey evidence

proving that unsophisticated consumers would be de-

ceived or misled. The district court concluded that

No. 08-3458 15

Ms. Ruth had to present extrinsic evidence that the unso-

phisticated consumer would view the notice as a com-

munication in connection with the collection of a debt and

that the notice threatened illegal action. Because Ms. Ruth

had presented no such evidence, the district court con-

cluded that the defendants were entitled to summary

judgment.

Ms. Ruth submits that the district court’s decision was

in error. She contends that it is inappropriate to require

extrinsic evidence to prove that a notice was sent “in

connection with” an attempt to collect a debt. She also

argues that, although extrinsic evidence sometimes is

required to prove that a communication was deceptive

or misleading, the FDCPA does not require such

evidence when the communication contains an unam-

biguous misstatement of the law.

1. The “In Connection With” Element

The district court granted summary judgment to the

defendants in part because it read our case law to require

the plaintiffs to establish, via extrinsic evidence, that the

unsophisticated debtor would view the notice as having

been sent in connection with an attempt to collect a debt.

Ms. Ruth submits that this conclusion was erroneous;

she contends that whether a communication was sent

in connection with collection of a debt should be mea-

sured by an objective standard rather than a subjective

one. Otherwise, she contends, debt collectors will be free

to send false or misleading collection letters as long as

the letters are so misleading that the unsophisticated

16 No. 08-3458

consumer fails to recognize them as attempts to col-

lect a debt. Ms. Ruth submits that this would be a nonsen-

sical result.

Whether the “in connection with” element is subject to

the unsophisticated-consumer standard is one of first

impression for our court; indeed, we are not aware of,

nor have the parties advised us of, any decision by a

federal court of appeals addressing the question. In light

of the statute’s purposes, and the consequences that

would follow from the district court’s approach, we

must conclude that the proper standard is an objective

one. To hold, as the district court did, that a communica-

tion is made in connection with collection of a debt—and,

therefore, is subject to the FDCPA’s protections—only

if the unsophisticated consumer recognizes it as such,

would stand the statute on its head. Unscrupulous debt

collectors could shield themselves from liability simply

by disguising their collection letters as something else.

The more deceptive the letters were, the more likely

they would escape FDCPA liability. Needless to say,

Congress’ intent in enacting the FDCPA was not to en-

courage debt collectors to deceive consumers; in fact, it

was just the opposite. Thus, we conclude that whether

a communication was sent “in connection with” an

attempt to collect a debt is a question of objective fact, to

be proven like any other fact. It need not be established

by extrinsic evidence of what the unsophisticated con-

sumer might think.

Turning to the facts of this case, we believe that any

reasonable trier of fact would conclude that the notice

No. 08-3458 17

was sent in connection with an attempt to collect a debt.

The notice was sent in the same envelope as the collection

letter, which the defendants admit was sent for debt-

collection purposes. Both the notice and the letter refer

to both defendants: Triumph Partnerships, the owner

of the defaulted debt, and TAS, the company hired to try

to collect it. The only relationship the defendants had

with the plaintiffs arose out of Triumph Partnerships’

ownership of the plaintiffs’ defaulted debt.3 In sum, the

defendants would not have sent this combination of

materials to the plaintiffs if they had not been at-

tempting to collect a debt.

Accordingly, the district court erred in granting sum-

mary judgment to the defendants because of Ms. Ruth’s

failure to produce extrinsic evidence to satisfy the “in

3

There is some evidence in the record indicating that the

defendants phrased the notice the way they did because

Triumph Partnerships had contemplated offering the plain-

tiffs an opportunity to discharge the defaulted debt by trans-

ferring it to a new credit account. If the debtor agreed to such

an arrangement, the new account would not be subject to the

FDCPA, and the defendants could share certain nonpublic

information acquired while servicing that account without

the debtor’s prior consent.

Any plans along these lines that the defendants might have

had are irrelevant to this case, however, because neither the

collection letter nor the notice ever mentions such an arrange-

ment or indicates that the information-sharing described in

the notice would be limited to information collected pursuant

to such an arrangement.

18 No. 08-3458

connection with” element of her FDCPA claim. As a

matter of law, the letter and notice were sent in con-

nection with an attempt to collect a debt.

2. The “False, Deceptive, or Misleading” Element

As discussed above, 15 U.S.C. § 1692e provides that “[a]

debt collector may not use any false, deceptive, or mis-

leading representation or means in connection with the

collection of any debt.” The statute specifies sixteen

types of conduct that run afoul of this prohibition. In

her complaint, Ms. Ruth relied upon two subsections:

section 1692e(5), which proscribes “[t]he threat to take

any action that cannot legally be taken or that is not

intended to be taken,” and section 1692e(10), which

prohibits “[t]he use of any false representation or

deceptive means to collect or attempt to collect any debt

or to obtain information concerning a consumer.”

The notice states that “[t]o the extent permitted by

law, we may collect and/or share all the information we

obtain in servicing your account.” R.1, Ex. A. It goes on

to describe the types of information the defendants

might collect and the parties with which it might share

that information. Ms. Ruth submits that the notice

violates the FDCPA because it implies that the defen-

dants have a legal right to collect and share nonpublic

information about the debtor without the debtor’s prior

consent. In effect, Ms. Ruth claims that the defendants

stated in the notice they had the legal authority to

disclose nonpublic personal information and then stated

that they might, in fact, share such information with

No. 08-3458 19

other parties. She contends that such information-

sharing is illegal under the FDCPA; thus, she argues, the

notice is false, in violation of section 1692e(10), and consti-

tutes a threat to take illegal action, in violation of section

1692e(5). In her view, because the notice is objectively and

materially false, the district court erred in requiring

extrinsic evidence to prove that it was misleading to the

unsophisticated consumer.

We recently considered, and rejected, Ms. Ruth’s argu-

ment that a false statement automatically violates the

FDCPA. In Wahl v. Midland Credit Management, Inc., 556

F.3d 643 (7th Cir. 2009), we explained that an FDCPA

plaintiff bears the burden of proving that even a false

statement would mislead or deceive the unsophisticated

consumer:

If a statement would not mislead the unsophisticated

consumer, it does not violate the FDCPA—even if it

is false in some technical sense. For purposes of

§ 1692e, then, a statement isn’t “false” unless it

would confuse the unsophisticated consumer. See

Turner [v. J.V.D.B. & Assoc.], 330 F.3d [991, 995 (7th

Cir. 2003)] (“[O]ur test for determining whether a debt

collector violated § 1692e is objective, turning not on

the question of what the debt collector knew but on

whether the debt collector’s communication would

deceive or mislead an unsophisticated, but reason-

able, consumer.”). So, while the FDCPA is a strict

liability statute—a collector “need not be deliberate,

reckless, or even negligent to trigger liability,” Ross v.

RJM Acquisitions Funding LLC, 480 F.3d 493, 495 (7th

20 No. 08-3458

Cir. 2007), the state of mind of the reasonable debtor

is always relevant. The upshot? Wahl can’t win

simply by showing that Midland’s use of the term

“principal balance” is false in a technical sense; she

has to show that it would mislead the unsophisticated

consumer.

Id. at 645-46. Accord Muha v. Encore Receivable Mgmt., Inc.,

558 F.3d 623, 627 (7th Cir. 2009); Hahn v. Triumph P’ships

LLC, 557 F.3d 755, 757 (7th Cir. 2009).

Thus, contrary to Ms. Ruth’s arguments, she could not

prevail in the district court simply by proving that state-

ments in the notice were false. Whether they were false

or not, she had to prove that an unsophisticated con-

sumer would be deceived or misled by them.

The next question we must consider is whether Ms. Ruth

was required to produce extrinsic evidence in order to

meet this burden. A review of our prior decisions in

FDCPA cases reveals that suits alleging deceptive or

misleading statements fall into three distinct categories.

In the first category are cases involving statements that

plainly, on their face, are not misleading or deceptive. In

these cases, we do not look to extrinsic evidence to deter-

mine whether consumers were confused. Instead, we

grant dismissal or summary judgment in favor of the

defendant based on our own determination that the

statement complied with the law. See, e.g., Hahn, 557

F.3d at 757 (affirming summary judgment for the defen-

dants where the alleged falsehood was immaterial and

therefore could not be misleading); Wahl, 556 F.3d at 646

(“[W]e see no way this language would confuse the

reasonable consumer, unsophisticated though she may

No. 08-3458 21

be.”); Barnes v. Advanced Call Ctr. Techs., LLC, 493 F.3d 838,

841 (7th Cir. 2007) (affirming a grant of summary judg-

ment for the defendants because “we [could] not see

how an unsophisticated consumer” could interpret the

communication in the misleading manner suggested by

the plaintiffs).

The second category of cases involves statements that

are not plainly misleading or deceptive but might

possibly mislead or deceive the unsophisticated con-

sumer. In these cases, we have held that plaintiffs may

prevail only by producing extrinsic evidence, such as

consumer surveys, to prove that unsophisticated con-

sumers do in fact find the challenged statements mislead-

ing or deceptive. See, e.g., Hahn, 557 F.3d at 757 (“Hahn

does not contend that the ‘interest due’ line item is mis-

leading. To get anywhere with such an argument she

would need to introduce survey evidence, or some equiva-

lent, demonstrating how the language actually affects

borrowers.”); Evory v. RJM Acquisitions Funding L.L.C., 505

F.3d 769, 776 (7th Cir. 2007) (“[W]e have no way of deter-

mining whether a sufficiently large segment of the unso-

phisticated are likely to be deceived to enable us to con-

clude that the statute has been violated. For that, evidence

is required, the most useful sort being the . . . consumer

survey . . . .”); Williams v. OSI Educ. Servs., Inc., 505 F.3d

675, 678 (7th Cir. 2007).4 The district court in this case

4

In Williams, we wrote:

Our past cases indicate that summary judgment may be

avoided by showing that the letter, on its face, will confuse

(continued...)

22 No. 08-3458

thought that the notice fell into this category. In the

absence of any extrinsic evidence, the court granted

summary judgment for the defendants.

Not every meritorious FDCPA claim requires such

extrinsic evidence, however; some collection notices are

clearly misleading on their face. Cases involving

plainly deceptive communications fall into a third cate-

gory, one where we will grant summary judgment for

the plaintiffs without requiring them to prove what is

already clear. As we explained in McKinney, “in some

situations . . . a debt collector’s letter may be so clearly

confusing on its face that a court may award summary

judgment to the plaintiff on that basis.” 548 F.3d at 503

(citing Durkin v. Equifax Check Servs., 406 F.3d 410, 415 (7th

Cir. 2005)); see also Chuway v. Nat’l Action Fin. Servs., Inc.,

362 F.3d 944, 948 (7th Cir. 2004) (excusing the plaintiff’s

burden to produce extrinsic evidence, based on the

court’s own determination that the letter at issue was

confusing).

We believe that this case falls into this third category.

Upon receiving and reading the collection letter and

4

(...continued)

a substantial number of recipients. We also have said that,

absent a showing that the face of the letter will precipitate

such a level of confusion, the plaintiff must come forward

with evidence beyond the letter and beyond [her] own

self-serving assertions that the letter is confusing in order

to create a genuine issue of material fact for trial.

505 F.3d at 678 (alteration in original).

No. 08-3458 23

the notice, the only reasonable conclusion that an unso-

phisticated consumer 5 —or, indeed, any consumer—could

reach is that the defendants were claiming a legal right

to disclose the nonpublic information about the debtor

that they had obtained as a consequence of attempting

to collect the debt, and were threatening to do so unless

the debtor affirmatively “opted out.” After all, the defen-

dants had no other relationship with the plaintiffs and

therefore had no foreseeable prospect of obtaining

nonpublic information in any other way. The defendants

do not deny that sharing the nonpublic information they

had about the plaintiffs, without their express prior

consent, would have violated the FDCPA. 6 Thus, on its

face, the only reasonable interpretation of the notice was

as a threat to take illegal action.

5

“The unsophisticated debtor is ‘uninformed, naive, [and]

trusting’ but is also assumed ‘to possess rudimentary knowl-

edge about the financial world and is capable of making basic

logical deductions and inferences.’ ” McKinney v. Cadleway

Props., Inc., 548 F.3d 496, 503 (7th Cir. 2008) (alteration in

original) (quoting Durkin v. Equifax Check Servs., Inc., 406 F.3d

410, 414 (7th Cir. 2005)).

6

The defendants submit that the Gramm-Leach-Bliley Act

permits the sharing of certain kinds of nonpublic information

unless a customer affirmatively opts out. See Appellees’ Br. 17-

19. This is irrelevant, however, because, with a few exceptions

not applicable here, the FDCPA bars debt collectors from

communicating with third parties about a debtor in the

absence of “the prior consent of the consumer given directly

to the debt collector . . . .” 15 U.S.C. § 1692c(b).

24 No. 08-3458

The defendants argue that the notice does not falsely

claim a right to share the plaintiffs’ nonpublic informa-

tion because it states that the defendants will do so only

“to the extent permitted by law.” Appellees’ Br. 20. To

threaten to take some action “to the extent permitted by

law,” however, is to imply that, under some set of cir-

cumstances and to some extent, the law actually permits

that action to be taken. Here, the defendants have sug-

gested no set of circumstances under which the FDCPA

would have permitted disclosure of the plaintiffs’

nonpublic information without their consent. If anything,

the notice’s implication to the contrary makes the state-

ment more misleading, not less. See Gionis v. Javitch, Block &

Rathbone, LLP, 238 Fed. App’x 24, 27-29 (6th Cir. 2007)

(unpublished disposition) (holding that the defendant’s

representation that it could collect attorney’s fees “to the

extent permitted by applicable law” violated the FDCPA

because the applicable state law did not permit collection

of such fees).

Thus, we conclude that the only reasonable conclusion

an unsophisticated consumer could reach, upon

receiving the collection letter and the notice, was that the

defendants intended to share without permission the

nonpublic information they had received by virtue of

acquiring and collecting on the debts. As a matter of law,

therefore, the notice constitutes “a threat to take . . . action

that cannot legally be taken,” 15 U.S.C. § 1692e(5), and a

“false representation or deceptive means to collect or

attempt to collect a[] debt,” id. § 1692e(10).

No. 08-3458 25

C.

Finally, Ms. Ruth submits that the district court erred

in failing to grant summary judgment in her favor on the

defendants’ assertion of the bona fide error defense.

15 U.S.C. § 1692k(c) provides that 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.” The district court held that the

defendants had produced enough evidence to create

a genuine issue of triable fact as to whether the

procedures they had in place were sufficient to entitle

them to the protection of this statutory defense.

Ms. Ruth submits that the district court erred in declin-

ing to hold that, as a matter of law, the defendants’

actions did not qualify as bona fide error under the

FDCPA. In support of her argument, Ms. Ruth relies on

our decision in Seeger v. AFNI, Inc., 548 F.3d 1107 (7th Cir.

2008). In that case, this court held that the defendant,

which had attempted to collect fees that were not autho-

rized by Wisconsin state law, was not entitled to the

FDCPA’s bona fide mistake defense because it did not

have in place reasonable procedures designed to

prevent errors. The court acknowledged that the defen-

dant’s employees regularly reviewed legal summaries

prepared by trade groups (though only on the FDCPA, not

on state law) and read excerpts of relevant state statutes.

The court concluded, however, that this was not suf-

26 No. 08-3458

ficient. The court specifically noted that the defendant

“never consulted an attorney in Wisconsin on state law

issues, nor did it ask a Wisconsin governmental agency

whether it was entitled to charge a collection fee as the

owner of the debt.” Id. at 1114. We rejected the

defendant’s contention “that its ignorance of the law

should be excused because it attempted to keep itself

informed about the law through the various trade associa-

tion communications”; we concluded that “this [was] not

enough . . . to support the bona fide error defense.” Id.

Ms. Ruth submits that, like the defendants in Seeger, the

defendants in this case failed to establish procedures

that were sufficient to establish a defense of bona fide

error. She notes that the defendants apparently never

asked an attorney to review the notice; instead, they

relied on a 2001 pamphlet published by a trade group

called the Debt Buyers’ Association.

The defendants, on the other hand, contend that their

procedures were reasonably sufficient to prevent errors.

They point to evidence in the record that Rick Arko, the

Vice President who chose the original notice language,

had extensive training in FDCPA and Gramm-Leach-

Bliley compliance, and that the notice was reviewed by

Kevin Bradford of TAS’ Compliance Department. They

also defend their reliance on a pamphlet from the Debt

Buyers’ Association that was written by a lawyer.

We note at the outset that the defendants’ error was an

error of law: They misconstrued whether the notice

satisfied the statute’s requirements. It is an open question

whether the FDCPA’s bona fide error provision applies

No. 08-3458 27

to legal errors, or just to procedural or clerical errors

such as stating incorrectly the amount owed or inadver-

tently mailing a required communication to the wrong

address. The courts of appeals are divided on this

question,7 and the Supreme Court recently granted certio-

rari on the issue. See Jerman v. Carlisle, McNellie, Rini,

Kramer & Ulrich LPA, 538 F.3d 469, 476 (6th Cir. 2008)

(holding that the defense applies to legal errors), cert.

granted, 557 U.S. ___ (June 29, 2009).

We have not taken a side in this intercircuit split. Al-

though we occasionally have assumed, in cases where it

made no difference to the outcome, that the defense

applies to legal errors, we have not yet resolved the

question definitively.8 The same is true in this case. We

7

Compare Baker v. G. C. Servs. Corp., 677 F.2d 775, 779 (9th Cir.

1982) (holding that the defense does not apply to legal errors),

and Hulshizer v. Global Credit Servs., Inc., 728 F.2d 1037, 1038 (8th

Cir. 1984) (same), and Pipiles v. Credit Bureau of Lockport, Inc., 886

F.2d 22, 27 (2d Cir. 1989) (same), with Jerman v. Carlisle, McNellie,

Rini, Kramer & Ulrich LPA, 538 F.3d 469, 476 (6th Cir. 2008)

(holding that the defense applies to legal errors), cert. granted,

557 U.S. ___, (June 29, 2009), and Johnson v. Riddle, 305 F.3d

1107, 1121-23 (10th Cir. 2002) (same).

8

See, e.g., Seeger v. AFNI, Inc., 548 F.3d 1107, 1114 (7th Cir. 2008)

(“We have no need to take sides on the circuit split in this

case, because, even assuming that AFNI’s mistake was a

mistake of law, it cannot prevail for other reasons.”); Nielsen

v. Dickerson, 307 F.3d 623, 641 (7th Cir. 2002) (“This question,

which the parties have not addressed, is not one that we need

(continued...)

28 No. 08-3458

have no need to decide whether the bona fide error

defense applies to the defendants’ error, or to wait for

the Supreme Court’s judgment on the matter, because a

thorough review of the record convinces us that the

steps the defendants took were not sufficient to qualify

for the defense.

A defendant is entitled to invoke the FDCPA’s bona fide

error defense only if it can show that the violation: (1) was

unintentional, (2) resulted from a bona fide error, and

(3) occurred despite the debt collector’s maintenance of

procedures reasonably adapted to avoid such error. Kort

v. Diversified Collection Servs., Inc., 394 F.3d 530, 537 (7th

Cir. 2005) (citing Jenkins v. Heintz, 124 F.3d 824, 834 (7th

Cir. 1997)). Ms. Ruth does not contend that the defen-

dants have failed to establish the first two elements; she

submits, however, that they did not have reasonable

procedures in place to prevent the kind of error they

committed in this case.

Because so few courts have sanctioned the use of the

bona fide error defense to excuse errors of law, there is

little authority to guide us in determining whether a

party’s use of any particular set of procedures was rea-

sonable. In Seeger, we held that the defendant’s pro-

cedures were insufficient because they did not include

consulting an attorney, or the appropriate governmental

agency, about whether the communications sent to

8

(...continued)

to decide here. We shall again assume that Household may

avail itself of the defense . . . .”).

No. 08-3458 29

debtors accurately stated the law. Seeger, 548 F.3d at 1114

(“[The defendant] never consulted an attorney in Wis-

consin on state law issues, nor did it ask a Wisconsin

governmental agency whether it was entitled to charge

a collection fee as the owner of the debt.”). In Jerman, the

Sixth Circuit held that the defendant, a law firm, had

earned the protection of the defense by employing

“specific procedures to comply with FDCPA and its ever-

changing body of law”:

Defendant law firm has designated its senior

principal, Richard McNellie, as the individual respon-

sible for compliance with the FDCPA; McNellie regu-

larly attends conferences and seminars that focus on

FDCPA issues; the firm subscribes to “Fair Debt

Collection,” a part of “The Consumer Credit and Legal

Practice Series,” together with the supplements

thereto; McNellie routinely distributes copies of cases

relevant to the firm’s practices and procedures to all

attorneys at the firm; all new employees, attorneys and

nonattorneys, are advised of the firm’s obligations

under the FDCPA and provided with the firm’s

FDCPA Procedures Manual, and encouraged to seek

McNellie’s advice with questions regarding the

FDCPA; McNellie conducts a mandatory meeting at

least twice a year for all available employees wherein

FDCPA issues and developments are discussed.

Jerman, 538 F.3d at 477 (citation and quotation marks

omitted). In Johnson v. Riddle, 443 F.3d 723, 730-31 (10th

Cir. 2006), the Tenth Circuit held that the defendant, an

attorney, could establish a bona fide error defense by

30 No. 08-3458

proving that he had (1) researched relevant statutes

and case law to determine whether state law gave debt

collectors the right claimed in the collection letters,9 and

(2) filed a “test case” to verify that collectors indeed

had such a right under state law. In considering what

kinds of procedures would be sufficient to establish a

bona fide error of law, the court noted:

Procedures which may be reasonably adapted to

avoiding a clerical error—e.g., sending employees and

staff to training seminars or subjecting employees

and staff to compliance testing—cannot shield an

attorney from liability for legal errors because such

clerical procedures are mostly about the mechanics

for collecting debts. Furthermore, only Riddle, as the

attorney in charge, rather than his staff or employees, may

make a core legal decision as to whether a particular practice

is permitted by law. Thus, in order for his mistake to

have been bona fide, Riddle himself must have em-

ployed procedures to avoid committing an error, and

those procedures must have been reasonably adapted

to avoiding the core legal error that occurred.

Id. at 730 (emphasis added).

After reading these cases, we conclude that, if the bona

fide error defense is available at all for errors of law, it is

available only to debt collectors who can establish that

they reasonably relied on either: (1) the legal opinion of

9

The legal issue in Johnson was whether state law permitted

the recipient of a bad check to demand a $250 “shoplifting

penalty” from the person who wrote the check.

No. 08-3458 31

an attorney who has conducted the appropriate legal

research, or (2) the opinion of another person or organiza-

tion with expertise in the relevant area of law—for exam-

ple, the appropriate government agency.1 0

Measured against this standard, the defendants’ proce-

dures fall short. Although the defendants have produced

evidence that their employees attended training sessions

on FDCPA compliance, and that they had procedures

in place to prevent violations of other provisions of

the FDCPA, they point to no evidence in the record

indicating that they ever sought legal or regulatory advice

as to whether the collection letter and notice were in

compliance with the FDCPA. The defendants claim that

they reasonably relied on a 2001 pamphlet titled “Ques-

tions and Answers about New Federal Privacy Regulations

As They Apply to Debt Buyers and Other ‘Financial

Institutions.’ ” R.57, Ex. G at 1. The pamphlet, which was

written by an attorney and published by the Debt Buy-

ers’ Association, suggests that “a possible way to comply

[with Gramm-Leach-Bliley] would be to have the third

party collector send out your entity’s privacy notice on

your ‘financial institution’s’ letterhead; for economy, that

notice could be included with that agency’s or law firm’s

FDCPA validation letter.” Id. at 12. The defendants claim

10

We do not hold that a debt collector necessarily must consult

with an attorney or government agency to get individualized

approval of every communication it wishes to send out. Under

the circumstances of a particular case, reliance on general

advice from a qualified attorney or government agency might

well be sufficient to support a claim of bona fide error.

32 No. 08-3458

that their reliance on this advice was reasonably adapted

to prevent legal mistakes.

We disagree. The pamphlet falls far short of a legal

opinion on which it was reasonable for the defendants

to rely for the proposition that their letter and the notice

were in compliance with the FDCPA. First of all, the

pamphlet does not purport to give advice about the

FDCPA; it is focused on compliance with federal reg-

ulations implementing the privacy provisions in the

Gramm-Leach-Bliley Act. Second, the pamphlet specifi-

cally disclaims that it is providing legal advice, and

directs the reader to consult an attorney before taking any

action. The pamphlet’s front page explicitly states:

This pamphlet does not provide legal advice. It is

not a complete guide to the new law and regulations.

Rather, it is a general overview of a brand new compli-

cated law and implementing regulations. The

more your entity wants to market data, the more

onerous the compliance. . . . The reader should consult

with legal counsel regarding the applicability of the

statutes and regulations to his or her debt buying

entity or “financial institution” as defined therein.

There are many variations to how the law and FTC

regulations will apply depending on how your entity

is structured, its marketing and servicing arrange-

ments with third parties, whether or not it is part of

an affiliated group, and whether your entity wants to

sell information to third parties.

Id. at 1. Third, and perhaps most critically, the pamphlet

does not provide any advice about how a disclosure

No. 08-3458 33

notice should be worded to comply with the FDCPA. In

light of all this, the pamphlet is simply too insubstantial

to justify the defendants’ reliance on it in concluding

that the notice complied with the FDCPA. Ms. Ruth

was entitled to summary judgment on the defendants’

attempt to raise the bona fide error defense.

Conclusion

There is no evidence in this record to indicate that the

defendants intentionally sought to mislead or to deceive

the recipients of the collection letter and notice. The

FDCPA, however, is a strict liability statute, and debt

collectors whose conduct falls short of its requirements

are liable irrespective of their intentions. Ross v. RJM

Acquisitions Funding LLC, 480 F.3d 493, 495 (7th Cir. 2007)

(“[T]he representation need not be deliberate, reckless, or

even negligent to trigger liability—it need only be

false . . . .”). Accordingly, for the reasons set forth above,

we must reverse the judgment of the district court and

remand the case with instructions to enter judgment

in favor of the plaintiffs. The defendants shall bear the

costs of this appeal.

R EVERSED and R EMANDED W ITH INSTRUCTIONS

8-17-09