Stalingrad

The United States Court of Appeals for the Sixth Circuit vacated and remanded a judgment against a debt-collecting law firm

A lawyer sued two lawyers, and each side hired more lawyers. Five years later, after “Stalingrad litigation” tactics, discovery sanctions, and dueling allegations of professional misconduct, we are left with $3,662 in damages and roughly $180,000 in attorney’s fees. We vacate and remand.

Maureen Van Hoven, a Michigan attorney, defaulted on a credit card debt with Discover several years ago. Discover hired Buckles & Buckles, a law firm, to collect the debt. The law firm filed a debt collection lawsuit in state court and won. Van Hoven didn’t pay.

Faced with a recalcitrant debtor, a creditor may use garnishment to intercept the debtor’s income at its source (say from the debtor’s employer) rather than trying to collect from the debtor herself. Post-judgment garnishment usually comes easily because the debtor already had her day in court and lost. That’s true in Michigan, where the Michigan Court Rules offer a simplified post-judgment garnishment procedure. To collect, the creditor gives the court clerk a verified statement that describes the debt and the parties. MCR 3.101(D). If everything “appears to be correct,” the clerk issues a writ of garnishment and the creditor serves it on the third party, the garnishee. MCR 3.101(D)–(E).  Unless the garnishee or debtor objects, that’s usually it: The garnishee gives the money to the creditor rather than the debtor. MCR 3.101(J)(1).

Buckles & Buckles invoked the procedure to collect this debt, filing four requests for a writ of garnishment over the course of a year. Van Hoven says those requests violated the Michigan Court Rules in two ways. In each request, Buckles tacked on the costs of the request (a $15 filing fee) to the amount due. And in later garnishment requests, Buckles added the costs of prior failed garnishments, those that didn’t result in any money changing hands. Van Hoven didn’t object to the law firm’s garnishment requests in Michigan state court, as the Rules permit. MCR 3.101(K). She instead filed a class action lawsuit in federal court under the Fair Debt Collection Practices Act, which prohibits debt collectors from making false statements in their dunning demands. 15 U.S.C. § 1692e.

More twists and turns later, Van Hoven won her class action. The court found that Buckles & Buckles owed 168 class members $3,662 in damages—$22 per person on average. Her attorneys sought $186,680 in attorney’s fees, and the court granted their request in full.

Buckles & Buckles appealed the merits ruling and the attorney’s fee award.

Plaintiff’s case

Van Hoven claims that Buckles & Buckles made two types of “false, deceptive, or misleading representation[s]” under the Act when they presented their garnishment requests to the state court clerk: (1) they sought the costs of each garnishment request under Michigan law, and (2) they sought the costs of prior failed garnishments under Michigan law.

The court

All in all, when Buckles & Buckles asked for all total costs, including those of any garnishment request to date, it did not make a “false, deceptive, or misleading representation” and therefore did not violate the Act. 15 U.S.C. § 1692e. It was a reasonable request at the time—and thus not false at the time—and by our lights reflected the best interpretation of the Rules anyway.

But

The decision of Buckles & Buckles to include the cost of prior failed garnishments is another matter. In these instances, the law firm included the costs of garnishments that failed because the garnishee did not owe the debtor any money, did not hold any property subject to garnishment, or was not the debtor’s employer. MCR 3.101(R)(2) (2014). At the time of this lawsuit, the Rules made clear that creditors were “not entitled to recover the costs of [the] garnishment” when that happened. Id.; Amendments at 6. That makes including them a false representation under the Act.

But the Act does not punish every factual and legal misrepresentation, only culpable ones. Debt collectors are protected from liability if they can show that their “violation was 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). Buckles & Buckles claims to have just such a procedure for potential factual misrepresentations. The law firm by the way does not argue that this defense applies to these legal misrepresentations. For good reason: It’s difficult to see how they could be “bona fide” mistakes. Instead, it argues that it included many prior failed garnishment costs by mistake. By mistakes of fact, that is: In other words, it tried and failed to prevent the costs of prior failed garnishments from being included.

The remand provides the law firm with an opportunity to make that case.

The trial court may also reconsider the grant of class action status. 

JANE B. STRANCH, Circuit Judge, dissenting.

The majority opinion concludes that Buckles & Buckles did not violate the FDCPA when it taxed consumers with court costs before those costs came due under Michigan Court Rules. It arrives at this conclusion, however, by asking the wrong question—whether the practice of Buckles & Buckles was reasonable, rather than whether it was lawful. The district court appropriately framed the question and correctly answered it under our published precedent. I would affirm its judgment holding Buckles & Buckles liable for making misleading representations in violation of the FDCPA…

The district court properly determined that Buckles & Buckles’ efforts to tax consumers with current court costs before those costs came due or with unrecoverable past costs were misleading representations in violation of the FDCPA. It also correctly granted Van Hoven’s motion in limine. These rulings relied on Supreme Court precedent, our published authority, the applicable Michigan Court Rules, and the discretion granted to a trial court. Because I would affirm the decisions below, I respectfully dissent.

(Mike Frisch)