Opposition Brief — Crown Asset Management LLC, Petitioner v. Mary Barbato

NO. 19-100

In the

Supreme Court of the United States

CROWN ASSET MANAGEMENT, LLC,

Petitioner,

v.

MARY BARBATO,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Third Circuit

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

DANIEL A. EDELMAN

COUNSEL OF RECORD

EDELMAN, COMBS,

LATTURNER & GOODWIN, LLC

20 SOUTH CLARK STREET,

SUITE 1500

CHICAGO, IL 60603

(312) 739-4200

DEDELMAN@EDCOMBS.COM

CARLO SABATINI

BRETT FREEMAN

SABATINI FREEMAN, LLC

216 N. BLAKELY STREET

DUNMORE, PA 18512

(570) 341-9000

COUNSEL FOR RESPONDENT

AUGUST 27, 2019

SUPREME COURT PRESS

♦

(888) 958-5705

♦

BOSTON, MASSACHUSETTS

i

QUESTION PRESENTED

Does the record show that Crown Asset Management, LLC—including persons and firms whose acts

are attributable to it under standard principles of

agency law—collects the debts it purchases through

litigation and communications?

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED .......................................... i

TABLE OF AUTHORITIES ...................................... iv

INTRODUCTION ....................................................... 1

I.

THERE IS NO DIVISION AMONG THE COURTS

OF APPEALS ....................................................... 2

II. THE PETITION IS BASED ON UNTRUE FACTUAL

ASSERTIONS ....................................................... 3

III. CROWN ENGAGES IN DIRECT DEBT COLLECTION UNDER THIS COURT’S PRECEDENTS .......... 8

IV. THE DIVERSITY OF BUSINESS PRACTICES OF

DIFFERENT DEBT BUYERS MAKES THE ISSUE

OF WHETHER A DEBT BUYER IS A DEBT

COLLECTOR AN INHERENTLY FACT-INTENSIVE

ISSUE; FEW IF ANY DEBT BUYERS FIT THE

MODEL POSTULATED BY CROWN ........................ 9

V. THE THIRD CIRCUIT’S DECISION IS CORRECT

AND CONSISTENT WITH THE TEXT OF THE

FDCPA AND HENSON ...................................... 12

A. Contrary to the Petition’s Assertion

(Petition, pp. 17-18), the Court of Appeals

Did Not Hold That the Purchase of Bad

Debts Without Any Attempt to Collect

Them Made Crown a “Principal Purpose”

Debt Collector ........................................... 12

B. Crown’s Position Is Based on a

Distortion of the Law of Agency ............... 13

iii

TABLE OF CONTENTS – Continued

Page

C. The Third Circuit Correctly Applied the

Law of Agency to Determine What Acts

Are Attributable to Crown........................ 21

D. Henson Does Not Apply ............................ 25

CONCLUSION.......................................................... 27

iv

TABLE OF AUTHORITIES

TABLE OF AUTHORITIES

CASES

Page

American Society of Mechanical Engineers, Inc.

v. Hydrolevel Corp.,

456 U.S. 556 (1982) ............................................. 15

Bank of N.Y. Mellon Tr. Co. N.A. v.

Henderson, 862 F.3d 29 (D.C. Cir. 2017) ......... 20

Bernstein v. FTC,

200 F.2d 404 (9th Cir. 1952) ............................. 18

Burwell v. Hobby Lobby Stores, Inc.,

573 U.S. 682 (2014) ........................................... 14

Carlo v. Midwest Recovery Systems, LLC,

1:18cv31, 2018 WL 5267163

(N.D. Ohio 2018) ................................................ 11

Crown Asset Management, LLC v. Bogdan

Szwajnos, 2018-M5-008436 (2019) ..................... 5

Dejay Stores, Inc. v. FTC,

200 F.2d 865 (2d Cir. 1952) ............................... 18

Dorrian v. LVNV Funding, LLC,

479 Mass. 265, 94 N.E.3d 370 (2018) ............. 2, 3

Floersheim v. Engman,

161 U.S.App. D.C. 30, 494 F.2d 949 (1973) ...... 18

Floersheim v. FTC,

411 F.2d 874 (9th Cir. 1969) ............................. 17

Floersheim v. Weinburger,

346 F.Supp. 950 (D.D.C. 1972) ......................... 17

Gold v. Midland Credit Management, Inc.,

82 F.Supp.3d 1064 (N.D.Cal. 2015) .................. 11

v

TABLE OF AUTHORITIES—Continued

Page

Heintz v. Jenkins,

514 U.S. 291 (1995) ............................................. 8

Henson v. Santander Consumer USA Inc.,

137 S.Ct. 1718 (2017) .................................. passim

In re Floersheim,

316 F.2d 423 (9th Cir. 1963) ............................. 17

In re London Credit & Discount Corp.,

78 FTC 541 (1971) ............................................. 18

In re Marjorie P. Ingram,

67 FTC 1065 (1965) ........................................... 18

In re National Retail Board of Trade,

57 FTC 666 (1960) ............................................. 18

In re Pitler,

56 FTC 803 (1960) .............................................. 18

In re Rice,

53 FTC 5 (1956) ................................................. 18

In re Wacksman,

56 FTC 1615 (1960) ........................................... 18

Long v. Pendrick Capital Partners II, LLC,

374 F.Supp.3d 515 (D. Md. 2019) ..................... 11

McAdory v. M.N.S. & Associates, LLC,

No. 18-35923 (appeal filed Oct. 31, 2018,

argument set for Oct. 23, 2019) .......................... 2

McMahon v. LVNV Funding, LLC, 12cv1410,

2018 WL 1316736 (N.D. Ill. 2018) ...................... 10

Meyer v. Holley,

537 U.S. 280 (2003) ........................................... 14

vi

TABLE OF AUTHORITIES—Continued

Page

Midland Funding LLC v. Flores, 2018-M1-

106654 (Circuit Court of Cook County) ............ 10

Mitchell v. LVNV Funding, LLC, 2:12cv523,

2017 WL 6406594 (N.D. Ind. 2017) .................. 10

Mohr v. FTC,

272 F.2d 401 (9th Cir. 1959) ............................. 17

Mullery v. JTM Capital Management,

18cv549 and 18cv566, 2019 WL 2135484

(W.D.N.Y. 2019) ................................................. 10

National Clearance Bureau v. FTC,

255 F.2d 102 (3d Cir. 1958) ............................... 18

Needelman v. United States,

362 U.S. 600 (1960) ............................................. 9

People v. National Research Co.,

201 Cal.App.2d 765, 20 Cal.Rptr. 516 (1962) ..... 17

Reygadas v. DNF Associates LLC, 18cv2184,

2019 WL 2146603 (W.D. Ark. 2019) ................. 11

Romine v. Diversified Collection Servs., Inc.,

155 F.3d 1142 (9th Cir. 1998) ...................... 17, 20

Rothschild v. FTC,

200 F.2d 39 (7th Cir. 1952) ............................... 18

Silverman v. FTC,

145 F.2d 751 (9th Cir. 1944) ............................. 18

Skinner v. LVNV Funding, LLC,

2018 WL 319320 (N.D. Ill. 2018) ...................... 11

Slough v. FTC,

396 F.2d 870 (5th Cir. 1968) ............................. 18

vii

TABLE OF AUTHORITIES—Continued

Page

Tabiti v. LVNV Funding, LLC, 13cv7198,

2019 WL 1382235 (N.D. Ill. 2019) ..................... 11

The Monrosa v. Carbon Black Exp., Inc.,

359 U.S. 180 (1959) ............................................. 9

Torres v. LVNV Funding, LLC, 16cv6665,

2018 WL 1508535 (N.D. Ill. 2018) .................... 11

United States v. A & P Trucking Co.,

358 U.S. 121 (1958) ........................................... 15

United States v. Floersheim,

74cv484, 1980 WL 1852, 1980-2 CCH

Trade Cas. ¶63,368 (C.D.Cal. 1980) ................. 18

Valenta v. Midland Funding, LLC, 17cv6609,

2019 WL 1429656 (N.D. Ill. 2019) .................... 12

STATUTES

1 U.S.C. § 1 ................................................................ 23

15 U.S.C. § 15 ............................................................ 15

Fair Debt Collection Practices Act .................... passim

15 U.S.C. § 1692a(6) .......................................... 26

15 U.S.C. § 1692a(6)(B) ..................................... 14

15 U.S.C. § 1692e(10) ........................................ 19

15 U.S.C. § 1692e(11) ........................................ 19

15 U.S.C. § 1692e(14) ................................... 14, 19

15 U.S.C. § 1692e(9) .......................................... 19

15 U.S.C. § 1692l................................................ 14

viii

TABLE OF AUTHORITIES—Continued

Page

Interstate Commerce Act of 1887.............................. 15

JUDICIAL RULES

Sup. Ct. R. 10(a) .......................................................... 2

OTHER AUTHORITIES

Restatement (Second) of Agency § 14N (1958) ........ 22

S. Rep. No. 95-382 (1977), reprinted in 1977

U.S.C.C.A.N. 1695, 1696 ................................... 20

1

INTRODUCTION

Respondent Mary Barbato requests that the

Petition for Certiorari be denied.

There is no division among the Courts of Appeals.

Petitioner’s factual assertions concerning Crown’s

alleged lack of involvement in debt collection are

false. Crown engages in direct debt collection under

this Court’s precedents, including the filing and

active prosecution of thousands of debt collection

lawsuits against consumers. Since the Third Circuit

remanded for further fact-finding on what Crown does,

this matter is not ripe for review.

Differences in rulings on whether various debt

buyers are FDCPA debt collectors among the district

courts are fact-dependent. Petitioner’s assertion that

there is a uniform method of operation among debt

buyers and that Crown’s description of its business

typifies that method of operation is simply not true.

The Court of Appeals correctly interpreted the

FDCPA. Contrary to Petitioner’s assertion, it did not

hold that the purchase of bad debts without any attempt

to collect them made Crown a “principal purpose” debt

collector. Crown’s position is based on the premise

that the actions of attorneys, collection agencies, and

other persons regarded as agents under standard

principles of agency law should, for some reason, not

be attributed to Crown. The slight differences in text

between the definitions of “debt collector” in the

FDCPA furnish no basis for holding that Congress

intended wholesale displacement of the law of agency.

2

Nor does the Third Circuit’s holding make either the

definition of “creditor” or that of “debt collector”

meaningless. Claims by Crown and its amici that the

Third Circuit made an “end run” around Henson v.

Santander Consumer USA Inc., 137 S.Ct. 1718 (2017),

are unfounded.

I.

THERE IS NO DIVISION AMONG THE COURTS OF

APPEALS

As Crown admits (Petition, pp. 16-17), there is

no division of authority amongst the Courts of Appeals

as to how to apply the “debt collector” definition to

debt buying entities. This is, in fact, the first Court of

Appeals decision to address that issue; a similar

issue is presently pending before the Ninth Circuit in

McAdory v. M.N.S. & Associates, LLC, No. 18-35923

(appeal filed Oct. 31, 2018, argument set for Oct. 23,

2019). Generally, the absence of a split of authority

among the Courts of Appeals mitigates against review

by this Court. See Supreme Court Rule 10(a). The

Petition discusses conflicts among district court

decisions (Petition, p. 16), which as set forth below

are largely fact-dependent.

Crown cites (Petition, p. 16) as inconsistent the

Massachusetts decision in Dorrian v. LVNV Funding,

LLC, 479 Mass. 265, 94 N.E.3d 370 (2018), but that

case turned on Massachusetts law and agency deference. Massachusetts separately regulates debt collectors

and creditors, and requires licensing and examination of debt collectors. For purposes of these regulations, Massachusetts chose to treat debt buyers that

purchase debts in default as “creditors.” Id. at 378 n.

12. The Banking Division’s regulations provided that a

“buyer of debt in default that is not directly engaged

3

in collection of those debts is not required to obtain [a

debt collection] license so long as collection activity is

performed by [a] licensed debt collector.” Id. at 377.

The Massachusetts court’s decision that LVNV Funding, LLC was not a debt collector turned on “[t]he

[Banking] division’s long-standing interpretation of

G. L. c. 93, § 24,” holding that “[w]e approve the

division’s reasonable and expert interpretation in this

complex regulatory environment.” Id.

A decision holding that a given entity should be

regulated as a creditor rather than a debt collector

under Massachusetts law, where a regulation specifically defines it as such, is not persuasive authority to

interpret a federal law where no similar regulation

exists. The FDCPA, unlike Massachusetts law, does

not apply to creditors (unless they use a false name),

and does not require licensure of anyone.

Dorrian, in any event, addresses issues of state

law, not the FDCPA. State legislatures are free to

follow similar definitions to those found in the FDCPA,

or not, as they see fit. However, those decisions have

no bearing on how the FDCPA should be interpreted.

II.

THE PETITION IS BASED ON UNTRUE FACTUAL

ASSERTIONS

There is a problem with the asserted factual predicate of the certiorari petition—it is untrue. Crown

asserts that it is a “passive debt buyer” that “does not

itself communicate with the debtors.” (Petition, p. 4.)

It further asserts, without any support, that “[t]he

relevant facts are undisputed and representative.”

(Petition, p. 23.) Both of these assertions are false.

4

The District Court’s decision which was affirmed

by the Third Circuit was one denying both parties’

motions for summary judgment, i.e., the decision found

that issues of fact existed, and ordering further factfinding proceedings. Those proceedings have been

stayed as a result of the filing of the petition for

certiorari. When the stay is lifted, Respondent Barbato

expects to prove that Crown’s activities are far more

extensive than it claims in its petition.

Crown regularly undertakes debt collection activity

itself, including the filing of thousands of collection

lawsuits with Crown as the plaintiff. At the time Ms.

Barbato responded to Crown’s summary judgment

motion in May 2016 (Dkt. #94.) she showed that Crown

had filed over 270 lawsuits in Pennsylvania state

courts, more than 850 lawsuits in Illinois, 118 cases

in Indiana trial courts for which electronic dockets

are available, and over 700 cases in New York State

trial courts during 2012-2014. (Dkt. #94, pp. 3-4 of

12; Dkt. #94-1; Dkt. #94-2.) The total number of cases

Crown filed in New York, at any time, was then over

3,000. (Dkt. #94-1.) Current searches of the same

dockets show that Crown’s lawsuit filings have

increased substantially.

In at least some of these cases, Crown employees

executed affidavits in lieu of testifying. (Dkt. #94-3.)

Some of the affidavits were signed by Jessica Foster

(Dkt. #94-3, pp. 36, 44, 54, 64, 72, 80, 88, 96, 107,

116, 117, 124, 131, 138, and 145 of 147.) Ms. Foster

was deposed (Dkt. #80-3) and testified that she was

Crown’s Director of Outsourcing and then promoted

to Vice President of Operations. (Id., p. 7.) The

notaries before whom these affidavits were executed

5

are located in Georgia, where Crown is headquartered.

The Georgia Secretary of State’s website shows that

these notaries have email addresses such as lhall@

crownasset.com. And, as with any party that retains

counsel to file a lawsuit, as the named plaintiff Crown

exercises substantial control over its counsel.1

Crown, through its affiliate CAM1, had a “Collection Services Agreement” with Turning Point Capital,

Inc., the entity that sent the offending collection letter

to Ms. Barbato. The agreement (Dkt. #80-8, authenticated by Dkt. #80-3, p. 19) authorized Turning Point

to receive money on behalf of Crown and required

Turning Point to remit and account to Crown for money

received on Crown’s debts. It required Turning Point to

maintain “a complete, correct and current record of

each account, which [CAM1] may access and review

at any time.” It required Turning Point to use “due

diligence” to collect Crown’s accounts and authorized

Turning Point to settle accounts owned by Crown. (Collection Services Agreement, § 4.2)

Crown expected Turning Point to send a demand

letter to the consumer “relatively quickly” after an

account was placed, within 3 to 5 days. (Dkt. #80-3,

p. 32-33) Crown monitored the performance of collection

agencies in collecting money and allocated new accounts

based on past performance. (Dkt. #80-3, p. 48)

1 On occasion these lawsuits go to trial. On at least one occasion

in 2019, a representative of Crown with the title of “portfolio

manager” appeared in Cook County, Illinois and gave live testimony. Crown Asset Management, LLC v. Bogdan Szwajnos,

2018-M5-008436 (June 24, 2019).

6

The Collection Services Agreement gave CAM1

“the right to examine and audit [Turning Point’s]

business, operations, security architecture, systems,

procedures and practices that relate to the Services

and the Agency’s obligations under this Agreement.”

It provided that CAM1 “may, among other audit tasks,

measure or evaluate Agency’s performance and

professionalism, verify the accounting of all funds,

including any trust account, verify the accuracy and

propriety of all commissions verify the timeliness of

recording and remitting payments, verify the adequacy

of cash controls, and verify Agency’s overall compliance

with this Agreement.” The agreement provided that

“Audits may be performed, either on-site or remotely,

at [CAM1’s] discretion. Agency shall grant [CAM1]

access to its system of record via electronic access to

permit remote audits.” Ms. Foster in fact visited

Turning Point’s offices prior to hiring it and periodically

afterwards. (Dkt. #80-3, pp. 15-18.)

Crown audits collection agencies and attorneys

whom it hires and has an audit and compliance manager to effectuate that process. (Dkt. #80-3, pp. 24-6.)

As of December 2015, Crown reviews forms or templates of collection agency letters for certain points

(Dkt. #80-3, pp. 14-15, 74), although it may not have

in the past. The points for which Crown audits letters

are required disclosures. (3:13cv2748, Dkt. #80-3, pp.

25-26.) Audits also involve review of operations,

accounting, training, compliance, procedures, and data

physical security. (3:13cv2748, Dkt. #80-3, p. 29.)

The agreement provided that “Agency shall allow

full and free access to records relating to any Account

forwarded and shall provide necessary technical

7

assistance as required to access these records.” It

provided that CAM1 “agrees to advise Agency of the

exceptions/discrepancies identified in any audit and

agrees to allow Agency a reasonable period of time to

respond to them. Where [CAM1] determines Agency

shall take corrective measures, Agency shall submit

to [CAM1] a corrective action plan that will correct

any deficiencies.” It required Turning Point to indemnify Crown against liability arising from its conduct

and to maintain insurance for Crown’s benefit. Crown

had a very similar agreement with Greystone Alliance,

LLC. (Dkt. #86-4.)

When Crown hired a new collection agency, or

“servicer,” it provided the agency with a “welcome

packet” (Dkt. #86-6) which required the agency to

provide “status updates” (Dkt. #86-6 pp. 5 and 14)

and advised the agency of expected “projected liquidations.” (Dkt. #86-6 p. 6.) “Status updates . . . allow

[Crown] to track the collection treatment process of

accounts placed with [the servicer].” (Dkt. #86-6 p.

14.) It also provided the agency with the means to

request account documentation, or “media,” from

Crown, necessary if suit was filed or a consumer

requested verification (Dkt. #86-6 p. 8.)

Substantially all of Crown’s revenue comes from

the collection of consumer debts. Some of the revenue

is generated from lawsuits, such as those described

above. Some is generated from having third party

collection agencies dun the consumers prior to suit.

8

III. CROWN ENGAGES IN DIRECT DEBT COLLECTION

UNDER THIS COURT’S PRECEDENTS

Crown’s assertion that it does not engage in debt

collection activity is inconsistent with this Court’s

decisions. The filing of thousands of collection lawsuits against consumers is certainly “debt-collection

activity.” See Heintz v. Jenkins, 514 U.S. 291 (1995).

Crown’s assertion that it “does not itself communicate

with the debtors” and “never interacts with debtors”

when a process server hands the consumer a summons

and complaint headed “Crown Asset Management,

Plaintiff v. Consumer, Defendant” is contrary to this

Court’s decision in Heintz, as well as ordinary English

usage. Similarly, having Crown employees testify

against consumers, either by affidavit or in open court,

simply does not comport with Crown’s description of

itself as a “passive debt buyer.”

While Crown points out that Ms. Barbato was one

of several hundred consumers who received collection

letters from an agency Crown hired, the statutory test

looks to the “principal purpose” or “regular” business

activities of the putative “debt collector,” not what it

did in a particular case. If Crown sues or threatens to

sue thousands of consumers, its “principal purpose”

cannot be said to exclude “any debt-collection activity”

or any “interact[ion] with respondent or other consumers.”

The Court of Appeals remanded the matter to the

District Court for factual determination of what Crown’s

business activities actually consist of. Those activities

are not as represented in the petition.

Generally, this Court does not grant petitions for

certiorari where the questions presented are based

9

on one party’s view of disputed and unresolved

questions of fact. See Needelman v. United States,

362 U.S. 600 (1960) (Justice Frankfurter dissenting

from dismissal of certiorari as improvidently granted).

This Court has preferred to resolve legal issues in the

context of developed factual records, not abstractly.

The Monrosa v. Carbon Black Exp., Inc., 359 U.S. 180,

184 (1959). The foregoing illustrates why this is a

sound policy. Review, if any, by this Court should

await proceedings in the lower courts, regarding the

extent of Crown’s actual business activities.

IV. THE DIVERSITY OF BUSINESS PRACTICES OF DIFFERENT DEBT BUYERS MAKES THE ISSUE OF

WHETHER A DEBT BUYER IS A DEBT COLLECTOR AN

INHERENTLY FACT-INTENSIVE ISSUE; FEW IF ANY

DEBT BUYERS FIT THE MODEL POSTULATED BY

CROWN

While there are various rulings on the passive

debt buyer issue percolating in the district courts

(Petition, pp. 16-17), this activity is in substantial

part because the business models of various debt buying

entities are quite different, and the application of the

definition of “debt collector” in the FDCPA tends to

be highly fact-dependent. Petitioner’s notion that there

is a uniform method of operation among debt buyers

and that Crown’s description of its business typifies

that method of operation is simply not true.

Indeed, Respondent’s counsel believe that there are

few if any debt buyers that do not have regular contact

with debtors, at least through the threat of lawsuits,

10

the actual filing of such suits, and credit reporting.

Toothless debt buyers don’t get paid.2

Crown wants to take harsh collection actions

against debtors, or threaten such action, and reap

the benefit of such actions, but at the same time

distance itself from the actions.

To the extent that the district court decisions

touch upon the issues addressed by the Third Circuit,

they generally find it persuasive. A number of courts

outside the Third Circuit have held, subsequent to

Henson, that debt buyers are debt collectors under

the “principal purpose” test or that a triable issue of

fact existed on the point. Mullery v. JTM Capital

Management, 18cv549 and 18cv566, 2019 WL 2135484,

*3-4 (W.D.N.Y. May 16, 2019) (“so long as the collection

of debts sustains the business, unaided by other

significant sources of revenue, the collection of debts

must be the primary purpose of the business and it

does not matter if the debt buyer hires a third party

to obtain payment from the debtor”); Mitchell v. LVNV

Funding, LLC, 2:12cv523, 2017 WL 6406594 (N.D. Ind.

Dec. 15, 2017); McMahon v. LVNV Funding, LLC,

12cv1410, 2018 WL 1316736 (N.D. Ill. March 14, 2018);

2 One major debt buyer, Midland Funding, LLC states in form

collection complaints that “the majority of Plaintiff’s consumers

ignore calls or letters, and some simply refuse to repay their

obligations despite an apparent ability to do so. When this

happens, Plaintiff must decide then whether to pursue collection

through legal channels, including litigation like the present action

against Defendant. Although the Account is now in litigation,

Plaintiff remains willing to explore a mutually-beneficial solution

through voluntary payment arrangements, if possible.” Midland

Funding LLC v. Flores, 2018-M1-106654 (Circuit Court of Cook

County), complaint, par. 12.

11

Reygadas v. DNF Associates LLC, 18cv2184, 2019 WL

2146603, *2-3 (W.D. Ark. May 16, 2019); Long v.

Pendrick Capital Partners II, LLC, 374 F.Supp.3d 515,

535-36 (D. Md. Mar. 18, 2019); Torres v. LVNV

Funding, LLC, 16cv6665, 2018 WL 1508535, *4 (N.D.

Ill. Mar. 27, 2018); Tabiti v. LVNV Funding, LLC,

13cv7198, 2019 WL 1382235, *8 and n. 8 (N.D. Ill.

Mar. 27, 2019); Skinner v. LVNV Funding, LLC, 2018

WL 319320 (N.D. Ill. Jan. 8, 2018); Carlo v. Midwest

Recovery Systems, LLC, 1:18cv31, 2018 WL 5267163

(N.D. Ohio, Oct. 23, 2018).

The cases cited by Petitioner (Petition, p. 16) as

contrary stem largely from poor records. For example,

Petitioner cites Gold v. Midland Credit Management,

Inc., 82 F.Supp.3d 1064 (N.D.Cal. 2015). This was a

summary judgment decision which first refused to apply

agency principles to determine what human actions

Midland Funding, LLC was legally responsible for,

stating that “a principal must be a debt collector in

order to be held vicariously liable for the debt collection

activities of another.” Id. at 1072. However, if the

principal is an entity such as Midland Funding, all

liability is vicarious. The court then stated that the

plaintiff had failed to put forth any evidence showing

any collection activity attributable to Midland Funding:

“Plaintiff offers no evidence to hint at a triable fact

on this issue, relying solely on legal argument in

opposition to Midland Funding’s summary judgment

motion.” Id.

Other decisions involving Midland Funding have

come to the opposite conclusion where a proper record

was furnished. Valenta v. Midland Funding, LLC,

17cv6609, 2019 WL 1429656, *3 (N.D. Ill., March 29,

12

2019) (“plaintiff has adduced evidence of collections

activity in the form of the collections lawsuits MF

has filed” and that the persons conducting collection

activity on debts owned by Midland Funding were its

agents).

V.

THE THIRD CIRCUIT’S DECISION IS CORRECT AND

CONSISTENT WITH THE TEXT OF THE FDCPA AND

HENSON

In addition to misstating the facts, the Petition

misrepresents the Court of Appeals’ decision.

A. Contrary to the Petition’s Assertion (Petition,

pp. 17-18), the Court of Appeals Did Not Hold

That the Purchase of Bad Debts Without Any

Attempt to Collect Them Made Crown a

“Principal Purpose” Debt Collector

Crown claims that the Third Circuit held that

the purchase of bad debts without any attempt to collect

them makes the purchaser a “principal purpose” debt

collector. “The court of appeals construed the ‘principal

purpose’ prong of the ‘debt collector’ definition in a

way that is utterly divorced from the natural meaning

of the text. . . . The plain text of the ‘principal purpose’ prong of the definition does not encompass a

passive debt buyer that never interacts with debtors.”

(Petition, pp. 17-18) However, the Third Circuit expressly held to the contrary, stating that if Crown

“buy[s] debt for the charitable purpose of forgiving it,

or . . . for the purpose of reselling it to unrelated

13

parties at a profit,” then “the entity’s ‘principal purpose’ would not be collection.” (16a.)3

Thus, the Third Circuit recognized that it was

necessary that the principal purpose of Crown’s business involve attempts by human actors to collect the

debts owed to Crown for the purpose of obtaining

money for Crown. Furthermore, the Third Circuit held

that if a majority of the putative debt collector’s revenue was from the liquidation of defaulted consumer

debts, that would demonstrate that its principal business activity or principal purpose was debt collection,

as the revenue represents the fruit of the actions by

human actors on its behalf.

B. Crown’s Position Is Based on a Distortion of

the Law of Agency

Crown’s position is based on the premise that

the actions of attorneys, collection agencies, and other

persons regarded as agents under standard principles of agency law should, for some reason, not be

attributed to Crown. Crown claims that the word

“collection” in the “principal purpose” part of the

“debt collector” definition and a negative inference

from the words “directly or indirectly” in the “regularly

collects” part of the “debt collector” definition some3 Amicus ACA International claims (p. 8) that it “is unaware

that any of its members have as their principal business

purpose the beneficent forgiveness of debts.” However, ACA

International’s membership consists of debt collectors. Entities

that buy bad consumer debt for the purpose of forgiving it are

charitable organizations, not “debt collectors.” There are such

entities: RIP Medical Debt states “We are a 501(c)(3) charity

that has abolished $715 million in medical debt for about

240,000 Americans.” (https://www.ripmedicaldebt.org/about/)

14

how require this result. Crown’s interpretations are

wrong; the Third Circuit’s decision is consistent with

the FDCPA.

First, the FDCPA leaves no doubt that its application is not restricted to individuals. Instead, it also

applies to legal entities such as Crown. See, e.g., 15

U.S.C. § 1692a(6)(B) (exclusion for “any person while

acting as a debt collector for another person, both of

whom are related by common ownership or affiliated

by corporate control”); 15 U.S.C. § 1692e(14) (prohibiting “[t]he use of any business, company, or organization name other than the true name of the debt

collector’s business, company, or organization.”); 15

U.S.C. § 1692l (administrative enforcement against

national banks, Federal savings associations, other

member banks of the Federal Reserve System,

commercial lending companies, and Federal credit

unions, all of which are entities).

Second, liability of an entity can exist only

because it is considered legally responsible for the

conduct of some human actors. “Corporations, ‘separate

and apart from’ the human beings who own, run, and

are employed by them, cannot do anything at all.”

Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682,

707 (2014).

Third, the law of agency defines what human

actions are legally attributable to an entity. As the

Third Circuit correctly noted, this Court has held

that where a statute refers to a legal entity performing

acts, it means that the law of agency applies to

determine whose actions are considered those of the

entity. Meyer v. Holley, 537 U.S. 280, 285 (2003)

(holding that Fair Housing Act imposes vicarious

15

liability for racial discrimination according to traditional

agency principles, as outlined in HUD regulations);

American Society of Mechanical Engineers, Inc. v.

Hydrolevel Corp., 456 U.S. 556, 565-574 (1982) (holding

that “general principles of agency law” may establish

a basis for liability in private antitrust actions under

15 U.S.C. § 15); United States v. A & P Trucking Co.,

358 U.S. 121, 121 (1958) (partnership can violate

Interstate Commerce Act based on agency principles).

Here, the Third Circuit carefully analyzed relevant

aspects of the law of agency, and remanded the matter

for factual determinations under that law. As set

forth below, the Court of Appeals’ approach was correct.

The specific arguments that Crown makes based on

the text of the FDCPA lack merit:

1. The Use of “Collection” and “Collects” In

The Two “Debt Collector” Definitions

Does Not Signify Congressional Displacement of the Law of Agency.

Crown argues that the use of two different variants

of the word “collect” in the FDCPA precludes the use

of normal agency principles here. It compares the use

of the term “collection” in the phrase “in any business

the principal purpose of which is the collection of any

debts,” with the use of the word “collects” in the

phrase “regularly collects or attempts to collect . . .

debts owed or due or asserted to be owed or due

another.” Crown asserts that the use of the noun

“collection” in one part of the definition, as compared

with the verb “collects” in another, is indicative of

Congressional intent to displace or modify the law of

agency in determining what acts are attributable to

16

an entity. This argument is unsupportable. Normal

agency principles must be applied to determine what

human actions are sufficient.

There is no question but that Crown directed,

caused and put into motion efforts to liquidate the

debts while Crown continued to own them, that such

efforts resulted in the collection of money, and that

the money went into Crown’s pockets. Indeed, all of

the money that went into Crown’s pockets was from

the liquidation of consumer debts. There is also no

question but that the Court of Appeals required that

attempts be made to collect the debts owned by Crown

before Crown could be a “debt collector.”

As the Third Circuit pointed out, “collection” is

slightly broader, but both “collection” and “collects,”

as applied to a corporation or other entity, necessarily

contemplate the acts of human beings attributed to

the entity under principles of agency law. Crown does

not suggest any body of law other than that of agency

that can be used to determine whether and when the

efforts of human agents to collect Crown’s debts are

attributable to it.

2. The Use of “Directly or Indirectly” in One

of the Definitions of “Debt Collector” Does

Not Signify Congressional Displacement of the Law of Agency in the Other

Definition.

Crown also argues that the use of “directly or

indirectly” in the “regularly collects” portion of the

“debt collector” definition—“regularly collects or

attempts to collect, directly or indirectly, debts owed

or due or asserted to be owed or due another”—but

17

not in the “principal purpose” portion renders normal

agency principles inapplicable under the “principal

purpose” portion. This argument is also ill-founded.

The reference to “indirectly” in the “regularly

collects for another” portion of the “debt collector”

definition is necessary to cover persons that provide

deceptive “skip tracing” and asset location services

for others engaged in debt collection, but who do not

themselves seek or collect money. See, e.g., Romine v.

Diversified Collection Servs., Inc., 155 F.3d 1142,

1147 (9th Cir. 1998). The outsourcing of such ancillary

collection services was a major problem prior to the

enactment of the FDCPA, when the Federal Trade

Commission repeatedly pursued firms that obtained

information about consumers by purporting to seek

employment references, inviting the recipient to collect

a prize, or otherwise engaging in deception.4 The per4 One enterprising pair of skip tracers operated under such

names as “National Research Company,” “National Marketing

Service,” “United States Credit Control Bureau,” “Claims Office,”

“Bureau of Verification,” “Bureau of Reclassification,” “Reverification Office” and “Disbursements Office.” They would disseminate—at the rate of 700,000 every six months—forms with titles

such as “Current Employment Records” and “Change of Address”

and which requested address, employment, banking, and

similar information. They also sent out “Claimants Information

Questionnaires” asking the recipient to verify that he or she

was the party entitled to receive unclaimed money. Mohr v.

FTC, 272 F.2d 401 (9th Cir. 1959) (affirming first cease and

desist order); People v. National Research Co., 201 Cal.App.2d

765, 20 Cal.Rptr. 516 (1962) (injunctive action to restrain

practices); In re Floersheim, 316 F.2d 423 (9th Cir. 1963) (contempt proceeding based on first cease and desist order);

Floersheim v. FTC, 411 F.2d 874 (9th Cir. 1969) (affirming

another cease and desist order); Floersheim v. Weinburger, 346

F.Supp. 950 (D.D.C. 1972), aff’d, Floersheim v. Engman, 161

18

sons engaged in such activities always did it for

“another.”

Congress expressly intended to define such pretextual information gathering activity as debt collection and outlaw it in enacting the FDCPA. S. Rep.

No. 95-382, p. 2, reprinted in 1977 U.S.C.C.A.N. 1695,

1696 (“The committee has found that debt collection

abuse by third party debt collectors is a widespread

U.S.App. D.C. 30, 494 F.2d 949 (1973) (attempted declaratory

action by collectors seeking to determine whether they were in

compliance with the second cease and desist order); United

States v. Floersheim, 74cv484, 1980 WL 1852, 1980-2 CCH

Trade Cas. ¶63,368 (C.D.Cal. 1980) (civil penalty action for

noncompliance with second cease and desist order).

Other firms used notices representing that the sender had

correspondence or packages for delivery to a debtor; these would

be sent to references used by a debtor. Dejay Stores, Inc. v.

FTC, 200 F.2d 865 (2d Cir. 1952); Rothschild v. FTC, 200 F.2d

39 (7th Cir. 1952).

Others pretended to be auditors. In re London Credit &

Discount Corp., 78 FTC 541 (1971) (consent order); In re

Marjorie P. Ingram, 67 FTC 1065 (1965) (consent order).

Yet others called themselves “State Credit Control Board”, Slough

v. FTC, 396 F.2d 870 (5th Cir. 1968), “Business Research” and

“Affiliated Credit Exchange,” Bernstein v. FTC, 200 F.2d 404

(9th Cir. 1952), “Manpower Classification Bureau” and “American

Deposit System,” Rothschild v. FTC, supra, 200 F.2d 39 (7th

Cir. 1952), “General Forwarding System,” Silverman v. FTC,

145 F.2d 751 (9th Cir. 1944), “National Retail Board of Trade”

and “National Liquidators, Inc.”, In re National Retail Board of

Trade, 57 FTC 666 (1960), “Retail Board of Trade,” In re Rice,

53 FTC 5 (1956), “Allied Information Service” and “National

Deposit System,” In re Wacksman, 56 FTC 1615 (1960), “Cavalier

Reserve Fund” and “Liberty Reserve Fund,” In re Pitler, 56 FTC

803 (1960) and “National Clearance Bureau,” National Clearance

Bureau v. FTC, 255 F.2d 102 (3d Cir. 1958).

19

and serious national problem. Collection abuse takes

many forms, including . . . obtaining information about

a consumer through false pretense, impersonating

public officials and attorneys. . . . ”). Congress enacted

multiple prohibitions in the FDCPA for that purpose.

15 U.S.C. §§ 1692e(9) (outlawing “[t]he use or distribution of any written communication which simulates

or is falsely represented to be a document authorized,

issued, or approved by any court, official, or agency of

the United States or any State, or which creates a

false impression as to its source, authorization, or

approval.”); 1692e(10) (outlawing “[t]he use of any

false representation or deceptive means . . . to obtain

information concerning a consumer”); 1692e(11) (prohibiting “[t]he failure to disclose in the initial written

communication with the consumer and, in addition, if

the initial communication with the consumer is oral,

in that initial oral communication, that the debt

collector is attempting to collect a debt and that any

information obtained will be used for that purpose,

and the failure to disclose in subsequent communications that the communication is from a debt collector.

. . . ”); 1692e(14) (outlawing “[t]he use of any business, company, or organization name other than the

true name of the debt collector’s business, company,

or organization.”). The coverage of “indirect” debt collection actions brings persons engaging in such deceptions within the FDCPA, even if they never demand

money.

Again, there is no indication that Congress

intended wholesale displacement or modification of

the law of agency to determine what actions are

considered those of a “debt collector,” or what other

legal principles would govern that determination.

20

3. The Third Circuit’s Decision Does Not

Make “Creditor” or the Alternative

Definitions of “Debt Collector” Meaningless

The fact that under the Third Circuit’s decision

some entities may be both creditors and debt collector

does not make either term meaningless. There remain

many entities that qualify as one, but not the other.

For example, banks, auto finance companies, retailers,

and other credit grantors are “creditors,” but not

“debt collectors.” The reasoning of the Third Circuit

would not alter this outcome, as the “principal”—over

50%—business purpose must be the “collection of any

debts.” As the lower courts have repeatedly held, the

“principal purpose” of loan originators, banks, retailers

and credit unions is the extension of credit, banking,

and the sale of goods and services. See, e.g., Bank of

N.Y. Mellon Tr. Co. N.A. v. Henderson, 862 F.3d 29,

34 (D.C. Cir. 2017); Romine v. Diversified Collection

Servs., Inc., 155 F.3d 1142, 1145 (9th Cir. 1998).

Their exclusion from coverage from the statute is

deliberate, as these entities, unlike entities like

Crown “generally are restrained by the desire to protect

their good will when collecting past due accounts.” S.

Rep. No. 95-382, at 2 (1977), reprinted in 1977

U.S.C.C.A.N. 1695, 1696. Hiring others to collect the

small percentage of their portfolios that go into

default does not change their “principal purpose” any

more than a bank which hires another firm to originate

loans for it.

The “regularly collects” definition retains independent meaning as well, applying to entities who

regularly collect debts for others but whose principal

21

purpose is not debt collection. A general practice law

firm that has consumer debt collection as 1/3 of its

practice is an obvious example. A collection agency

that handles mostly commercial debts but collects

consumer debts 1/4 of the time is another.

Finally, there are some entities—Respondent

contends that Crown is one of them—that may satisfy

both definitions. Nothing is “meaningless.”

C. The Third Circuit Correctly Applied the Law

of Agency to Determine What Acts Are

Attributable to Crown

All of Crown’s arguments amount to the proposition that its relationship with the human actors who

demand and receive payment, file lawsuits in the name

of Crown, provide testimony against debtors through

affidavits and in court, and perform other actions

necessary to turn the debts into cash, is such that

their conduct should not be attributed to it. Thus,

Crown argues that Crown merely “referred [the debts]

to a third party to perform collection” and that Crown

“neither communicated with respondent itself nor

supervised the third party’s activities.” (Petition, p. 4)

As set forth above, this characterization is not

true. Some of the human actors are clearly direct

employees of Crown. Crown employees are directly

involved in providing testimony and affidavits in

connection with the lawsuits. Crown monitored the

performance of its collection agencies and rewarded

or punished them based on that performance. Thus,

Crown’s own employees were clearly involved in

collection activity.

22

While some of the persons actually collecting the

debts were outside attorneys and independent contractor collection agents, the actions of attorneys and

similar agents in pursuing lawsuits, making representations to courts and adverse parties, and conducting negotiations have historically been legally

attributable to the client, even if the client is not

responsible for their physical conduct. “One who contracts to act on behalf of another and subject to the

other’s control except with respect to his physical

conduct is an agent and also an independent contractor.” Restatement (Second) of Agency § 14N (1958).

In fact, most of the persons known as agents,

that is, brokers, factors, attorneys, collection

agencies, and selling agencies are independent contractors as the term is used in the

Restatement of this Subject, since they are

contractors but, although employed to perform services, are not subject to the control

or right to control of the principal with respect

to their physical conduct in the performance

of them services. However, they fall within

the category of agents. They are fiduciaries;

they owe to the principal the basic obligations of agency: loyalty and obedience. . . .

Restatement (Second) of Agency § 14N (1958), comment

a (emphasis added).

The only significance of the distinction between

employees or servants and independent contractor

agents is the principal’s liability for unintended

physical harm caused by an employee or servant. That

is, Crown is responsible for its attorney’s representations to a court on its behalf, but is not liable if the

23

attorney strikes a pedestrian while driving to the

courthouse. The FDCPA is generally concerned with

representational conduct only.

Crown’s statement that it does not “supervise”

any of the third parties is untrue—the parties’ agreement provides for substantial supervision, including

auditing and accounting. As the Third Circuit pointed

out, the hallmark of agency is the principal’s right to

control the agent, not whether it actually exercises

that right. (18a) Crown clearly had the right. Additionally, Crown accepts the money resulting from the

collection efforts with knowledge or reason to know of

the means used to collect, which amounts to ratification of the collection efforts used to generate the money.

There is nothing “tortured” (Petition, p. 6) about

any of this. What is “tortured” is the position of

Petitioner and its amici, which at bottom is that “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,”

excludes or limits the application of normal agency

principles to determine the liability of entities that

must necessarily act via human agents. On Crown’s

theory, when a Crown employee executes an affidavit

used to verify a collection complaint in an action

entitled “Crown Asset Management v. Consumer”

and the document is handed to Consumer, this is a

communication from the process server, or from the

attorney, but Crown has nothing to do with it. That

position is so manifestly contrary to 1 U.S.C. § 1,

precedent, and common sense as to require its rejection.

Refusing to attribute the conduct of any agents to

a “principal purpose” debt collector would (1) effectively

24

immunize the debt buyer from liability, and (2) encourage the debt buyer to hire agents who are impecunious and irresponsible—which is exactly what happened

in the case at bar (Petition, p. 5). This formula would

deprive consumers of redress. Forbidding attribution is

inconsistent with the express Congressional imposition

of liability on debt collectors organized as corporate

entities.

Creating a wholly new body of law to determine

what conduct is attributable to “principal purpose”

debt collectors would cast litigants into uncharted

waters, with large litigation costs. There is also no

reason to take such drastic action, given the historic

use of general agency principles under federal statutes

and the lack of any guidance in the FDCPA as to what

other legal principles might apply.

Amicus Receivables Management Association

International states that there are numerous “secondary market” purchasers of current consumer debts of

various types, mostly mortgages. Again, the debts in

question are not in default when they become involved

with them, and the purchasers do not want the debts

to go into default. The defendant in Henson v.

Santander Consumer USA Inc., 137 S.Ct. 1718 (2017),

would appear to be one such entity, engaged in the

purchase of current consumer automobile finance contracts from car dealers.

Crown’s business is obviously and qualitatively

different. In Crown’s case, 100% of its debts in its

portfolio were in default at the time Crown first had

anything to do with them. The “principal purpose” of

its business—indeed the only purpose—is collection

of those defaulted debts.

25

The Third Circuit remanded for factfinding on

the issue of the relationship of the various human

actors doing the collection to Crown. The Third Circuit

held that if an entity’s principal source of revenue is

liquidation of defaulted consumer debts, it is a debt

collector even if it hires agents to do the liquidating,

and that agents can include attorneys and other persons

who are independent contractors. Its decision was

sound, and until the District Court makes findings as

to what Crown does and through whom, this Court

should decline review.

D. Henson Does Not Apply

Crown claims that the Third Circuit made an “end

run” around Henson v. Santander Consumer USA Inc.,

supra, 137 S.Ct. 1718 (2017). However, the portion of

the “debt collector” definition involved in this case is

the one that Henson expressly declined to address—

“in any business the principal purpose of which is the

collection of any debts.” Id. at 1721. Nothing that the

Third Circuit did is an “end run” around a decision

which declined to address the language at issue. This

Court did not hold that “an entity that purchases

debts for its own account, and then itself collects

those debts,” never was a “debt collector” (Petition, p.

9); rather, it held that such an entity was not collecting

for “another,” as required by the “regularly collects”

portion of the “debt collector” definition. (137 S. Ct.,

at 1721)

The lower courts in Henson had found that the

“principal purpose” of Santander was not debt

collection—it was a finance company that acquired a

small proportion of defaulted debts along with a normal

performing portfolio. The consumers did not argue

26

otherwise. (137 S.Ct., at 1721) The Court assumed

that Santander’s “primary business is loan origination

and not the purchase of defaulted debt”. (137 S.Ct.,

at 1725) Accordingly, the Henson court had no occasion

to interpret the “principal purpose” prong, and expressly

and carefully disclaimed any intention of doing so.

Crown and its amici proceed from the assumption

that the Henson court exempted from the scope of the

FDCPA all entities that purchase defaulted debt. There

is simply no basis for that assumption. An entity

whose sole business is that it acquires defaulted

consumer debt and has employees and non-employee

agents collect that debt from the consumers is “any

business the principal purpose of which is the collection

of any debts,” 15 U.S.C. § 1692a(6). It is Crown and

its amici, not Respondent, that seek to “amend,” rather

than “apply,” the statute.

27

CONCLUSION

The petition for certiorari should be denied.

Respectfully submitted,

DANIEL A. EDELMAN

COUNSEL OF RECORD

EDELMAN, COMBS,

LATTURNER & GOODWIN, LLC

20 SOUTH CLARK STREET,

SUITE 1500

CHICAGO, IL 60603

(312) 739-4200

DEDELMAN@EDCOMBS.COM

CARLO SABATINI

BRETT FREEMAN

SABATINI FREEMAN, LLC

216 N. BLAKELY STREET

DUNMORE, PA 18512

(570) 341-9000

COUNSEL FOR RESPONDENT

AUGUST 27, 2019