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Haney v. Portfolio Recovery Associates, L.L.C.

United States Court of Appeals, Eighth Circuit

September 21, 2016

Daniel Haney Plaintiff- Appellant
Portfolio Recovery Associates, L.L.C.; Gamache & Myers, P.C. Defendants-Appellees

          Submitted: January 14, 2016

         Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before WOLLMAN, MELLOY, and COLLOTON, Circuit Judges.

          PER CURIAM.

         Daniel Haney asserted claims against a debt collector, Portfolio Recovery Associates, L.L.C. ("PRA"), and its attorneys, Gamache & Myers, P.C. ("Gamache"), under the Fair Debt Collections Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"). The defendants moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), and the district court granted the motion. We affirm in part, reverse in part, and remand.


         Haney incurred credit-card debts using a Wal-Mart credit card issued by GE Money Bank, F.S.B. (the "Wal-Mart account"), and an HSBC credit card issued by HSBC Bank Nevada, N.A./Orchard Bank (the "HSBC account"). The card issuers charged off the debts and later sold and assigned the charged-off debts to PRA. PRA hired Gamache to aid in collection of the HSBC account. Gamache sent Haney three collection letters and filed a state-court collection action. PRA employed other counsel to aid in collection of the Wal-Mart account and filed a state-court collection action.

         Haney alleges FDCPA violations based upon statements, omissions, and demands in the underlying letters and collection actions. The primary issues raised in this appeal include: (1) whether the original creditors' acts of charging off the debts preclude the assignee debt collector from demanding post-charge-off statutory prejudgment interest in letters and collection suits; and (2) whether the demands sought prejudgment interest upon interest (compound interest) in violation of Missouri law and the FDCPA.

         With these arguments in mind, we turn to the detailed allegations. The balance of the Wal-Mart account was $1, 224.88 at the time of the July 20, 2010 charge-off. Of that total amount, $416.93 was labeled "FINANCE CHARGES" and consisted, at least in part, of accrued contractual interest. The HSBC account, purportedly charged off on June 30, 2010, had a balance of $740.16. A June 2010 statement shows the outstanding HSBC balance included at least some fee and interest charges. PRA received the Wal-Mart account by assignment on April 19, 2011. Haney does not allege the date of assignment for the HSBC account, and the pleadings and appended materials do not identify an assignment date.[1]

         Gamache sent Haney a first letter regarding the HSBC account dated April 11, 2013. The letter stated, "RE: PORTFOLIO RECOVERY ASSOCIATES, LLC DANIEL G HANEY, " identified the debt as "OUR FILE NO.: 13504068, " and stated the amount due was "$925.59 . . . plus interest that may accrue after the date of this letter." The letter stated Gamache would provide the name and address of the original creditor if Haney requested the creditor's identity within thirty days of receiving the letter. The letter also stated Gamache would assume the debt to be valid unless Haney responded within thirty days but would obtain verification of the debt if Haney provided notice in writing to dispute any portion of the debt. The file number listed in the letter bore no relationship to Haney's HSBC account number. The letter made no reference to HSBC or the $740.16 HSBC account balance at the time of charge-off and provided no explanation as to how the demanded amount of $925.59 was determined.

         In fact, Haney argues the amount demanded approximated the $740.16 charge-off balance plus nine percent statutory prejudgment interest from the June 20, 2010 charge-off to the date of the letter. The amount demanded was significantly below an amount that would have resulted from the continued accrual of contractual interest. The letter's demand for interest covered a period of time before and after PRA acquired the debt and sought statutory prejudgment interest on the entire charge-off balance, an amount that included original principal, fees, and contractual interest.

         In the second letter, dated May 16, 2013, Gamache identified the debt with the same account number, this time stating, "there appears to be an unpaid balance of $931.98, " but Gamache's client would settle for "745.58, provided this amount is paid within 10 days from the date of this letter." The third letter, dated May 31, 2013, listed the same account number and stated, "CLAIM AMOUNT AS OF THE DATE OF THIS LETTER IS: $934.72 PLUS INTEREST THAT MAY ACCRUE AFTER THE DATE OF THIS LETTER." Unlike the first two letters, which made no references to remedies or legal actions, the third letter concluded, "If we do not hear from you in five days, we will feel free to proceed with all available remedies without further notice to you."

         Haney took no action in response to the letters and sought no clarification regarding the identity of the original creditor. Gamache filed a Missouri state-court complaint on November 7, 2013, naming PRA as the plaintiff, identifying Gamache as counsel for PRA, and identifying HSBC as the original creditor. The complaint's prayer for relief, styled as a concluding "whereas" paragraph, sought "a sum of $740.16 [the original charged-off amount] plus post judgment interest at the statutory rate and for all costs expended herein and for any other and further relief this Court deems just and proper." The state-court complaint on the HSBC account included no request for pre-judgment interest.

         Regarding the Wal-Mart account, PRA sent no letters. Rather, PRA filed a Missouri state-court complaint on April 22, 2013. The complaint's prayer for relief, styled as a concluding "whereas" paragraph, sought "a sum of $1, 224.88 [the charged-off amount], together with prejudgment interest, as allowed by law, at the statutory rate from and after July 20, 2010, plus interest on any judgment rendered by this court at the rate of 9% per annum, all costs expended herein and for such further and other relief as this court deems just and proper." This demand for statutory prejudgment interest covered post-charge-off periods of time before and after PRA's acquisition of the debt and also sought statutory prejudgment interest on the accrued contractual interest reflected in the $1, 224.88 charge-off balance.

         Haney then filed the current complaint alleging FDCPA violations in four counts. Count I alleged PRA violated 15 U.S.C. § 1692e in several respects by "misrepresent[ing] the character or amount of the debt" being sought. First, Count I alleged PRA's suit on the Wal-Mart account misrepresented as principal a sum that also included interest. Count I also alleged PRA misrepresented the amount it sought by demanding prejudgment interest on a sum that already included contractual interest.[2] Regarding the HSBC account, Count I alleged PRA misrepresented the amount it sought by mischaracterizing as principal an amount that included interest. Finally, Count I alleged PRA violated § 1692e by "alleging, without providing proof of, a valid assignment from HSBC of the HSBC card debt[.]"

         Count II alleged Gamache violated 15 U.S.C. § 1692e in two respects by "misrepresent[ing] the character or amount of the debt" it sought. First, Count II alleged Gamache's letters failed to identify which debts were being pursued, "making it impossible to ascertain which debt Gamache was attempting to collect, and making it impossible to ascertain the validity of . . . the . . . debts[.]" Second, Count II alleged Gamache's letters "unlawfully attempt[ed] to collect interest-on-interest or . . . interest inconsistent with the amount of the original charged-off debt regardless of whether the letters were attempting to collect the HSBC . . . or the [Wal-Mart account] . . . debt[.]"[3]

         Count III alleged PRA violated 15 U.S.C. § 1692f(1) in two respects by "us[ing] unfair or unconscionable means to attempt to collect the [HSBC] debt[.]" First, Count III alleged PRA sought "interest, fees, and other amounts not permitted at law or expressly permitted by the written instrument creating the debt." Second, Count III alleged PRA sought interest on interest "when such compound interest was not expressly permitted by the written instrument."

         The defendants moved jointly for dismissal pursuant to Fed.R.Civ.P. 12(c). Haney resisted, and the district court granted the motion. The court first determined that the prayers for relief in the concluding paragraphs of a civil complaint were not communications to the debtor or actionable collection efforts pursuant to the FDCPA. Rather, the court characterized them as mere requests to the court. In the alternative, the court held the original creditor's act of charging off the card balance did not preclude a subsequent assignee from seeking statutory interest dating from the time of charge-off.

         The court then determined PRA had referenced only the "balance due" or the "outstanding sum" and had not made any actionable or potentially misleading statements regarding the relative breakdown of principal and interest in the amounts demanded. And, regarding the filing of the HSBC suit without proof of a valid assignment, the district court determined there existed no requirement for the presentation of such proof at the time a collection action is filed.[4]

          The district court determined Gamache had not violated § 1692e by failing to adequately identify the debt and Gamache and PRA had not impermissibly demanded prejudgment interest-on-interest or compound interest, in violation of state law. Haney appeals.


         A. Standard of Review, FDCPA Generally

         "We review a motion for judgment on the pleadings de novo. We accept as true all facts pleaded by the non-moving party and grant all reasonable inferences from the pleadings in favor of the non-moving party." United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000). "[W]e review [a] 12(c) motion under the standard that governs 12(b)(6) motions." Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). Pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555). We assess plausibility by "draw[ing] on [our own] judicial experience and common sense." Id. at 679. Further, we "review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation." Zoltek Corp. v. Structural Polymer Grp., 592 F.3d 893, 896 n.4 (8th Cir. 2010).

         "The FDCPA was passed 'to eliminate abusive debt collection practices.'" Janson v. Katharyn B. Davis, LLC, 806 F.3d 435, 437 (8th Cir. 2015) (quoting Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 577 (2010)). It broadly "prohibits a debt collector from making a 'false, deceptive or misleading representation or means in connection with the collection of any debt, '" id. (quoting 15 U.S.C. § 1692e), and "from using 'unfair or unconscionable means to collect or attempt to collect any debt, '" id. (quoting 15 U.S.C. § 1692f). "When evaluating whether a communication is false, deceptive, or misleading, we consider the perspective of an 'unsophisticated consumer.'" Id. (quoting Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002)). This standard is "designed to protect consumers of below average sophistication or intelligence without having the standard tied to 'the very last rung on the sophistication ladder.'" Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 317 (8th Cir. 2004) (quoting Duffy v. Landberg, 215 F.3d 871, 874 (8th Cir. 2000)). "Th[e] standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters." Id. at 317-18; see also Peters, 277 F.3d at 1055 (noting that the unsophisticated-consumer test "'prevents liability for bizarre or idiosyncratic interpretations of collection notices'" (quoting Wilson v. Quadramed Corp., 225 F.3d 350, 354 (3d Cir. 2000))). We do not apply the unsophisticated-consumer standard to communications sent to a consumer's attorney. Powers v. Credit Management Services, Inc., 775 F.3d 567, 573-74 (8th Cir. 2015).

         In addition to these general prohibitions, the FDCPA sets forth several specific examples of prohibited actions. For example, § 1692e(2) prohibits any "false representation of . . . the character, amount, or legal status of any debt[.]" Section 1692e(5) prohibits threats "to take any action that cannot legally be taken or that is not intended to be taken." Section 1692f(1) prohibits the "collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." And, § 1692g(a) imposes on debt collectors a duty to include certain content[5] in an initial communication with a debtor (or in a follow-up writing sent within five days). With these general requirements in mind, we turn to the parties' arguments.

         B. Post-Charge-Off Statutory Prejudgment Interest

         The parties agree that when an original creditor charges off a debt, additional contractual interest no longer accrues. Haney asserts a theory of implicit waiver to argue that the original creditor's choice to charge-off a debt and cease collection of contractual interest also serves as a binding waiver of any future ability to collect statutory interest. To support this theory, Haney details the purported accounting consequences of a charge-off and cites the legal effect of a charge-off on a creditor's ongoing obligation to provide periodic statements. See 12 C.F.R. § 226.5(b)(2)(i) ("Regulation Z").[6] Haney appears to argue that, because the act of charging off a debt is not merely a unilateral act but an act that alters the ...

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