Brown v. Card Service Center

Opinions of the United

2006 Decisions States Court of Appeals

for the Third Circuit

9-29-2006

Brown v. Card Ser Ctr

Precedential or Non-Precedential: Precedential

Docket No. 05-4160

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 05-4160

ELIZABETH BROWN, ON BEHALF OF HERSELF

AND ALL OTHERS SIMILARLY SITUATED,

formerly known as ELIZABETH SCHENCK,

Appellant

v.

CARD SERVICE CENTER;

CARDHOLDER MANAGEMENT SERVICES.

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 05-cv-0498)

District Judge: Honorable William H. Yohn, Jr.

Argued June 1, 2006

Before: AMBRO, FUENTES, and

GREENBERG, Circuit Judges.

(Filed: September 29, 2006)

Cary L. Flitter (Argued)

Lundy, Flitter, Beldecos & Berger, P.C.

450 N. Narberth Avenue

Narberth, PA 19072

David A. Searles

Donovan Searles, LLC

1845 Walnut Street

Suite 1100

Philadelphia, PA 19103

Attorneys for Appellant

Thomas W. Dymek

Stradley, Ronon, Stevens & Young, LLP

2600 One Commerce Square

Philadelphia, PA 19103

Thomas J. Cahill

Joshua M. Rubins (Argued)

Daniel G. Gurfein

Satterlee Stephens Burke & Burke LLP

230 Park Avenue

New York, NY 10169

Attorneys for Appellees

OPINION OF THE COURT

FUENTES, Circuit Judge.

Seeking to recover what it considered a bad debt, Card

Service Center sent Elizabeth Brown a collection letter telling her

that unless she made arrangements to pay within five days, the

matter “could” result in referral of the account to an attorney and

“could” result in “a legal suit being filed.” Brown sued, claiming

that because Card Service Center had no intention of referring her

account to an attorney and no intention of filing a law suit, the

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letter violates the Fair Debt Collection Practices Act’s ban on false,

misleading or deceptive communications. The District Court

dismissed Brown’s suit, concluding that because “[t]he letter

neither states nor implies that legal action is imminent, only that it

is possible,” Brown had failed to state a claim upon which relief

could be granted. We disagree, and for the reasons that follow we

vacate the District Court’s judgment and remand for further

proceedings.

I. Background

Card Service Center and Cardholder Management Services

(collectively, “CSC”) are debt-collection firms. In February of

2004, CSC sent Brown a collection letter (the “CSC Letter”)

demanding payment of a delinquent credit card balance of $1,874,

which it stated was due. The letter threatened referral of Brown’s

account to CSC’s attorney if payment was not made within five

days. In relevant part, the letter reads:

You are requested to contact the Recovery

Unit of the Card Service Center . . . to discuss your

account.

Refusal to cooperate could result in a legal suit

being filed for collection of the account.

You now have five (5) days to make

arrangements for payment of this account. Failure on

your part to cooperate could result in our forwarding

this account to our attorney with directions to

continue collection efforts.

(JA 1.) Though Brown did not make arrangements for payment on

her delinquent account within five days, CSC did not institute a suit

or otherwise enlist an attorney to assist with its collection efforts.

Rather, Brown’s decision not to comply with CSC’s request

resulted only in her receiving additional debt-collection letters from

CSC.

In February of 2005, Brown filed suit against CSC in the

United States District Court for the Eastern District of

Pennsylvania on behalf of herself and all other similarly situated

Pennsylvania consumers. In her complaint Brown alleged that the

CSC Letter contained “false and misleading” statements “designed

3

to coerce and intimidate the consumer . . . by false threat” and that

the complaint suggested a deadline for debtor action that was “false

and overstated.” (Amend Compl. ¶¶ 11, 13, 15.) In support of this

claim, Brown alleged that the 5-day deadline was illusory because

CSC never intended to bring suit against her or to refer her debt–or

that of the members of her putative class–to an attorney.

In response to the complaint, CSC filed a motion under Rule

12(b)(6) of the Federal Rules of Civil Procedure to dismiss the

complaint for failure to state a claim under the Fair Debt Collection

Practices Act (the “FDCPA” or the “Act”), 15 U.S.C. § 1692 et

seq. The District Court granted the motion without prejudice in

June of 2005. The District Court’s order dismissing the complaint,

which was amended by a second order in August of 2005, granted

Brown through the end of September to conduct further

investigation so that she might amend her complaint, with the

caveat that if she failed to do so, the June dismissal would

automatically become a dismissal with prejudice. Brown opted not

to amend her complaint, and the dismissal became final. This

appeal followed.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction over this matter pursuant

to 28 U.S.C. § 1331 and 15 U.S.C. § 1692k(d). We have

jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary

review over the grant of a motion to dismiss. Delaware Nation v.

Pennsylvania, 446 F.3d 410, 415 (3d Cir. 2006). When

considering an appeal from a Rule 12(b)(6) dismissal, we must

accept all well-pled allegations in the complaint as true and draw

all reasonable inferences in favor of the non-moving party. In re

Rockefeller Ctr. Props. Sec. Litig., 311 F.3d 198, 215 (3d Cir.

2002). In doing so, we must determine whether the plaintiff may

be entitled to relief under any reasonable reading of the complaint.

Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 374 n.7 (3d Cir.

2002).

III. Analysis

Brown maintains that the CSC Letter ran afoul of § 1692e

of the FDCPA, which reads in relevant part:

§ 1692e. False or misleading representations

4

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:

...

(5) The threat to take any action

that cannot legally be taken or that

is not intended to be taken.

Because CSC qualifies as a “debt collector” under the Act, see 15

U.S.C. § 1692a(6), to the extent the CSC Letter is “false, deceptive,

or misleading” or constitutes a “threat to take any action . . . not

intended to be taken,” it violates § 1692e.

A. FDCPA Background

Congress enacted the FDCPA in 1977 after noting the

“abundant evidence of the use of abusive, deceptive, and unfair

debt collection practices by many debt collectors.” 15 U.S.C.

§ 1692(a). At the time the Act was being considered, Congress

was concerned that “[a]busive debt collection practices contribute

to the number of personal bankruptcies, to marital instability, to the

loss of jobs, and to invasions of individual privacy.” Id. A

significant purpose of the Act is not only to eliminate abusive

practices by debt collectors, but “to insure that those debt collectors

who refrain from using abusive debt collection practices are not

competitively disadvantaged.” 15 U.S.C. § 1692(e).

In its findings Congress observed that “[e]xisting laws and

procedures” enacted to remedy the injuries occasioned by abusive

debt collectors “are inadequate to protect consumers.” 15 U.S.C.

§ 1692(b). Accordingly, the Act provides consumers with a private

cause of action against debt collectors who fail to comply with the

Act. 15 U.S.C. § 1692k. A prevailing plaintiff under the Act is

entitled to an award of damages, costs of suit and reasonable

attorneys’ fees. Id.

Because the FDCPA is a remedial statute, Hamilton v.

United Healthcare of La., 310 F.3d 385, 392 (5th Cir. 2002), we

construe its language broadly, so as to effect its purpose, See Stroh

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v. Director, OWCP, 810 F.2d 61, 63 (3d Cir. 1987). Accordingly,

in considering claims under another provision of the FDCPA, we

have held that certain communications from lenders to debtors

should be analyzed from the perspective of the “least sophisticated

debtor.” See Wilson v.Quadramed Corp., 225 F.3d 350, 354

(applying the perspective of the least sophisticated debtor to the

notice provision of the Act, § 1692g) (citation omitted); Graziano

v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991) (“Statutory notice

under the Act is to be interpreted from the perspective of the ‘least

sophisticated debtor.’”).

Analyzing lender-debtor communications from this

perspective is consistent with “basic consumer-protection

principles.” United States v. Nat’l Fin. Servs., 98 F.3d 131, 136

(4th Cir. 1996). As the Second Circuit has observed, “[t]he basic

purpose of the least-sophisticated consumer standard is to ensure

that the FDCPA protects all consumers, the gullible as well as the

shrewd. This standard is consistent with the norms that courts have

traditionally applied in consumer-protection law.”1 Clomon v.

Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993). That it may be

obvious to specialists or the particularly sophisticated that a given

statement is false or inaccurate does nothing to diminish that

statement’s “power to deceive others less experienced.” Federal

Trade Comm’n v. Standard Educ. Soc’y, 302 U.S. 112, 116 (1937).

As Justice Black has observed, our laws “are made to protect the

trusting as well as the suspicious,” and this is particularly the case

within the realm of consumer protection laws. Id. Bearing all of

this in mind, we conclude that any lender-debtor communications

potentially giving rise to claims under the FDCPA, such as the

CSC Letter, should be analyzed from the perspective of the least

sophisticated debtor.

1

For our purposes, “least sophisticated debtor” and “least

sophisticated consumer” can be used interchangeably. Our analysis

of the least sophisticated debtor/consumer standard focuses on the

level of sophistication, rather than whether the purported debtor

actually owes the debt claimed. See Graziano, 920 F.2d at 111 n.5

(noting the distinction in terminology, but ultimately deciding to

employ “least sophisticated debtor” in a Third Circuit FDCPA

case).

6

The least sophisticated debtor standard requires more than

“simply examining whether particular language would deceive or

mislead a reasonable debtor” because a communication that would

not deceive or mislead a reasonable debtor might still deceive or

mislead the least sophisticated debtor. Quadramed, 225 F.3d at 354

(internal quotation marks and citation omitted). This lower

standard comports with a basic purpose of the FDCPA: as

previously stated, to protect “all consumers, the gullible as well as

the shrewd,” “the trusting as well as the suspicious,” from abusive

debt collection practices. However, while the least sophisticated

debtor standard protects naive consumers, “it also prevents liability

for bizarre or idiosyncratic interpretations of collection notices by

preserving a quotient of reasonableness and presuming a basic level

of understanding and willingness to read with care.” Quadramed,

225 F.3d at 354-55 (internal quotation marks and citation omitted).2

B. Applying the Least Sophisticated Debtor Standard

to the CSC Letter

In its thorough analysis, the District Court determined that,

even accepting all of Brown’s factual allegations as true and

2

Other Courts of Appeals have also approached the

adjudication of matters under the Act from the perspective of the

least sophisticated debtor or consumer. See, e.g., Swanson v.

Southern Or. Credit Serv., 869 F.2d 1222, 1226-30 (9th Cir. 1988)

(adopting the least sophisticated debtor standard in a case relating

to FDCPA claims under §§ 1692a, 1692c and 1692e); Bentley v.

Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir. 1993) (“We

apply an objective test based on the understanding of the ‘least

sophisticated consumer’ in determining whether a collection letter

violates section 1692e.”); Smith v. Transworld Sys., 953 F.2d

1025, 1028-30 (6th Cir. 1992) (applying the least sophisticated

consumer standard in a case relating to FDCPA claims under

§§ 1692e and 1692g); Jeter v. Credit Bureau, 760 F.2d 1168, 1175

(11th Cir. 1985) (adopting the least sophisticated consumer

standard in addressing FDCPA claims under the §§ 1692d and

1692e); Nat’l Fin. Servs., 98 F.3d at 135-36, 139 (citing with

approval the district court’s application of the least sophisticated

consumer standard to a debtor’s § 1692e claim).

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drawing all reasonable inferences in her favor, no reasonable

reading of her complaint could entitle her to relief. In reaching this

conclusion, the District Court emphasized that the CSC Letter

employed the conditional term “could” as opposed to the

affirmative term “will.”3 The District Court observed that the CSC

Letter “neither states nor implies that legal action is imminent, only

that it is possible.” Brown v. Card Serv. Ctr., No. 05-cv-0498,

2005 U.S. Dist. LEXIS 12810, at *23 (E.D. Pa. Jun. 27, 2005). As

a result, the District Court concluded that the CSC Letter “poses no

‘threat’ pursuant to § 1692e(5), and because the letter simply

advises plaintiff of options available to CSC, the letter is not ‘false,

deceptive, or misleading’ under § 1692e, even if action were not

intended to be taken.” Id. The District Court found the CSC Letter

in compliance with the FDCPA because it merely stated what CSC

could do, if it so chose. The District Court drew a sharp contrast

between the CSC Letter and debt-collection letters that other courts

have held to be in violation of the Act because those letters made

false claims about what debt collectors would do if a given debtor

failed to respond. See, e.g., Crossley v. Lieberman, 868 F.2d 566,

567 (3d Cir. 1989) (finding an FDCPA violation where a letter

falsely stated, “Unless I receive payment in full within one week

from the date of this letter, I will be compelled to proceed with suit

against you.”). Though we express no opinion as to whether the

language of the CSC Letter constitutes a “threat” under § 1692e(5),

we believe that the facts as alleged in Brown’s complaint, if

proven, could render the CSC Letter a “deceptive” or “misleading”

communication, in violation of § 1692e.

We disagree with the District Court because we conclude

that it would be deceptive under the FDCPA for CSC to assert that

it could take an action that it had no intention of taking and has

never or very rarely taken before. The CSC Letter highlights two

possible outcomes for debtors failing to respond within five days:

the commencement of a lawsuit or the referral of the debt to CSC’s

attorney. In her complaint, Brown alleges that CSC never intended

3

For example, the CSC Letter states, “[r]efusal to cooperate

could result in a legal suit being filed for collection of the account”

and “Failure on your part to cooperate could result in our

forwarding this account to our attorney with directions to continue

collection efforts” (emphases added).

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to file a suit against her for collection, never had any intention of

referring her case to its attorney, and that as a matter of course,

CSC does not “refer class member’s [sic] alleged debts to their

attorney for prosecution, but only refer[s] the alleged debt(s) to

another collection agency.” (Amend Compl. ¶ 17) In light of these

allegations, Brown has stated a claim under § 1692e upon which

relief can be granted.

Upon reading the CSC Letter, the least sophisticated debtor

might get the impression that litigation or referral to a CSC lawyer

would be imminent if he or she did not respond within five days.

We do not believe that such a reading would be “bizarre or

idiosyncratic,” see Quadramed, 225 F.3d 354, and we thus

conclude that further proceedings are warranted to determine if

such a reading is “reasonable” in light of the facts of this case. A

debt collection letter is deceptive where “it can be reasonably read

to have two or more different meanings, one of which is

inaccurate.” Id. (citation omitted). If Brown can prove, after

discovery that CSC seldom litigated or referred debts such as

Brown’s and those of the putative class members to an attorney, a

jury could conclude that the CSC Letter was deceptive or

misleading vis-à-vis the least sophisticated debtor.

The Federal Trade Commission’s commentary (the “FTC

Commentary”) to the FDCPA further supports this conclusion.

The FTC Commentary observes that a debt collector “may state

that a certain action is possible, if it is true that such action is legal

and is frequently taken by the collector or creditor with respect to

similar debts,” but where the debt collector “has reason to know

there are facts that make the action unlikely in the particular case,

a statement that the action was possible would be misleading.” 53

Fed. Reg. 50097, 50106 (1988). In other words, were it proven

that the CSC had reason to know that the legal action described in

its letter to Brown was unlikely, its statement in the CSC Letter that

it was possible could be deemed misleading. In this sense, the facts

alleged by Brown fall squarely within the scope of the behavior

proscribed by the FTC language. Though the FTC Commentary

does not have the force of law and is “not entitled to deference in

FDCPA cases except perhaps to the extent [its] logic is

persuasive,” Dutton v. Wolpoff & Abramson, 5 F.3d 649, 654 (3d

9

Cir. 1993), in the context of this case we find it persuasive.4 We

are therefore satisfied that the facts pled by Brown, if proven, state

a claim upon which a court might grant relief.

Accordingly, because a court “may dismiss a complaint only

if it is clear that no relief could be granted under any set of facts

that could be proved consistent with the allegations,” Hishon v.

King & Spalding, 467 U.S. 69, 73 (1984), the District Court erred

in dismissing Brown’s complaint. We therefore vacate the

judgment of the District Court and remand for further proceedings

consistent with this opinion.

4

We note that Kaltenbach v. Richards, No. 05-30132, 2006

WL 2588994, *2 (5th Cir. Sept. 11, 2006) supports our decision to

defer to the FTC’s persuasive interpretation in this case. We are

mindful, however, that the standard applied in Kaltenbach is more

deferential than ours in Dutton v. Wolpoff & Abramson, 5 F.3d

649, 654 (3d Cir. 1993). Kaltenbach relies on Fifth Circuit

precedent that courts “must defer to [an] agency’s interpretation of

a statute that it administers if (1) Congress has not spoken directly

to the issue; and (2) the agency’s interpretation is based on a

permissible construction of the statute.” Kaltenbach, 2006 WL

2588994, *2 (citing Walton v. Rose Mobile Homes, 298 F.3d 470,

475 (5th Cir. 2002)) (internal quotation marks omitted).

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