Michelle Tatis v. Allied Interstate LLC , 882 F.3d 422 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 16-4022
____________
MICHELLE TATIS, Individually and on behalf
of all others similarly situated,
Appellant
v.
ALLIED INTERSTATE, LLC; JOHN DOES 1–25
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-16-cv-00109)
District Judge: Honorable John M. Vazquez
____________
Argued September 5, 2017
Before: CHAGARES, JORDAN, and HARDIMAN,
Circuit Judges.
(Filed: February 12, 2018)
Ari H. Marcus (Argued)
Yitzchak Zelman
Marcus & Zelman
1500 Allaire Avenue, Suite 101
Ocean, NJ 07712
Counsel for Appellant
James C. Martin (Argued)
Kellie A. Lavery
Reed Smith
136 Main Street, Suite 250
Princeton, NJ 08540
Counsel for Appellee
____________
OPINION OF THE COURT
____________
HARDIMAN, Circuit Judge.
This appeal arises under the Fair Debt Collection
Practices Act (FDCPA or Act). The question presented is
whether a collection letter sent to collect a time-barred debt that
makes a “settlement offer” to accept payment “in settlement
of” the debt could violate the Act’s general prohibition against
“any false, deceptive, or misleading representation or means in
connection with the collection of any debt.” 15 U.S.C. § 1692e.
We hold that it could.
I
Over ten years ago, Appellant Michelle Tatis incurred a
debt of $1,289.86 to Bally Total Fitness Holding Corp.
Appellee Allied Interstate, LLC—a debt collector—sent Tatis
2
a letter dated May 18, 2015 that read as follows: “[The creditor]
is willing to accept payment in the amount of $128.99 in
settlement of this debt. You can take advantage of this
settlement offer if we receive payment of this amount or if you
make another mutually acceptable payment arrangement
within 40 days . . . .” App. 37. At the time Allied sent its letter,
the six-year New Jersey statute of limitations applicable to
debt-collection actions had already run. Tatis v. Allied
Interstate, LLC, 2016 WL 5660431, at *1, *3 (D.N.J. Sept. 29,
2016); see also N.J. STAT. ANN. § 2A:14-1.
Tatis filed a class action in the United States District
Court for the District of New Jersey, alleging that Allied’s
letter violated the FDCPA. The complaint alleged that Tatis
interpreted the word “settlement” in the letter to mean that she
had a “legal obligation” to pay the debt, and the least-
sophisticated debtor would hold a similar belief. Compl. ¶ 27,
App. 32. She also claimed the letter was a “false, deceptive, or
misleading representation or means in connection with”
collecting the debt. Compl. ¶ 37, App. 34. Specifically, Tatis
alleged that Allied “[f]alsely represent[ed] the legal status of
the debt in violation of 15 U.S.C. § 1692e(2)(A),” made “false
threats to take action that cannot legally be taken in violation
of 15 U.S.C. § 1692e and 1692e(5),” and used “false
representations and/or deceptive means to collect or attempt to
collect [the] debt in violation of 15 U.S.C. § 1692e(10).”
Compl. ¶ 38, App. 34.
Allied filed a motion to dismiss the complaint under
Rule 12(b)(6) of the Federal Rules of Civil Procedure for
failure to state a claim, and the District Court granted the
3
motion. 1 See Tatis, 2016 WL 5660431, at *10. In doing so, the
Court looked primarily to our decision in Huertas v. Galaxy
Asset Management, 641 F.3d 28, 32–33 (3d Cir. 2011) (per
curiam), which it read to hold that an attempt to collect a time-
barred debt does not violate the FDCPA unless it is
accompanied by the threat of legal action. See Tatis, 2016 WL
5660431, at *5. And because Allied’s use of the word
“settlement” did not constitute threatened legal action, the
Court found dismissal of the complaint appropriate. Id. at *8–
9. The Court also found it significant that, under New Jersey
law, partial repayment of the debt would not revive the statute
of limitations. Id. at *9. Thus, the letter could not deceive or
mislead a consumer into inadvertently reviving a time-barred
legal claim. Id. 2
Tatis filed this appeal.
1
Allied filed a motion for judgment on the pleadings,
but the District Court construed it as a motion to dismiss for
failure to state a claim because it was filed before the pleadings
were closed. Tatis, 2016 WL 5660431, at *3.
2
Tatis also alleged that Allied used “unfair or
unconscionable means” when attempting to collect the debt.
The District Court dismissed that count, Tatis, 2016 WL
5660431, at *9, and Tatis has not made an argument
challenging that ruling on appeal, Tatis Br. 4–5. See Linder &
Assocs., Inc. v. Aetna Cas. & Sur. Co., 166 F.3d 547, 552 n.5
(3d Cir. 1999).
4
II 3
A
We review de novo the District Court’s order
dismissing Tatis’s complaint under Rule 12(b)(6). Wilson v.
Quadramed Corp., 225 F.3d 350, 353 (3d Cir. 2000). “[W]e
accept as true all allegations in the plaintiff's complaint as well
as all reasonable inferences that can be drawn from them, and
we construe them in a light most favorable to the non-movant.”
Sheridan v. NGK Metals Corp., 609 F.3d 239, 262 n.27 (3d
Cir. 2010). To survive dismissal, “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)). Plausibility means “more than a sheer
possibility that a defendant has acted unlawfully.” Id. “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. (citing
Twombly, 550 U.S. at 556).
B
Congress enacted the FDCPA to curb “abusive,
deceptive, and unfair debt collection practices.” 15 U.S.C.
§ 1692(a). Among other things, the Act seeks “to eliminate
abusive debt collection practices by debt collectors [and] to
insure that those debt collectors who refrain from using abusive
debt collection practices are not competitively disadvantaged.”
Id. § 1692(e). To effectuate these purposes, Congress
3
The District Court had jurisdiction under 28 U.S.C.
§ 1331. We have jurisdiction under 28 U.S.C. § 1291.
5
proscribed the use of “any false, deceptive, or misleading
representation or means in connection with the collection of
any debt” and provided a list of sixteen examples of such
prohibited conduct. Id. § 1692e. These include making “false
representation[s]” about “the character, amount, or legal status
of any debt,” id. § 1692e(2)(A), and “threat[ening] to take any
action that cannot legally be taken or that is not intended to be
taken,” id. § 1692e(5). As we have noted, “[b]ecause the list of
the sixteen subsections is non-exhaustive, a debt collection
practice can be a ‘false, deceptive, or misleading’ practice in
violation of section 1692e even if it does not fall within any of
the subsections.” Lesher v. Law Offices of Mitchell N. Kay, PC,
650 F.3d 993, 997 (3d Cir. 2011).
The FDCPA is remedial, so we “construe its language
broadly, so as to effect its purpose.” Brown v. Card Serv. Ctr.,
464 F.3d 450, 453 (3d Cir. 2006). In addition, we employ a
“least sophisticated debtor” standard to evaluate whether a
particular debt-collection practice violates the Act. Jensen v.
Pressler & Pressler, 791 F.3d 413, 418 (3d Cir. 2015) (citing
Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008)).
This standard aims to “protect[] the gullible as well as the
shrewd,” id. (alteration in original) (quoting Campuzano-
Burgos v. Midland Credit Mgmt., Inc., 550 F.3d 294, 298 (3d
Cir. 2008)), but it nevertheless “preserv[es] a quotient of
reasonableness and presum[es] a basic level of understanding
and willingness to read with care,” id. (alterations in original)
(quoting Rosenau, 539 F.3d at 221); see also Lesher, 650 F.3d
at 997 (characterizing the least-sophisticated debtor standard
as a “low standard”). The standard is objective, “meaning that
the specific plaintiff need not prove that she was actually
confused or misled, only that the objective least sophisticated
debtor would be.” Jensen, 791 F.3d at 419.
6
C
To prevail on her FDCPA claim, Tatis must
demonstrate that “(1) she is a consumer, (2) the defendant is a
debt collector, (3) the defendant’s challenged practice involves
an attempt to collect a ‘debt’ as the Act defines it, and (4) the
defendant has violated a provision of the FDCPA in attempting
to collect the debt.” Douglass v. Convergent Outsourcing, 765
F.3d 299, 303 (3d Cir. 2014). Only the fourth element is
disputed in this appeal.
In arguing whether Allied violated the FDCPA, the
parties offer competing interpretations of our opinion in
Huertas. Allied contends that Huertas imposed a “threat of
litigation” requirement that must be present for an attempt to
collect a time-barred debt to violate the FDCPA. By contrast,
Tatis attempts to distinguish Huertas, arguing that an “offer to
settle may mislead the least sophisticated [debtor] into
believing that a time-barred debt is legally enforceable, even
when litigation is not threatened.” Tatis, 2016 WL 5660431, at
*2.
In Huertas, the plaintiff received a letter seeking to
collect a time-barred debt. 641 F.3d at 31. Suit was brought
under 15 U.S.C. § 1692e(2)(A), alleging that the collection
letter Huertas received falsely represented the legal status of
his debt which, like Tatis’s, was time-barred under New Jersey
law. Huertas v. Galaxy Asset Mgmt., 2010 WL 936450, at *4
(D.N.J. Mar. 9, 2010); see also Huertas, 641 F.3d at 32. We
disagreed for several reasons.
First, we explained that Huertas’s debt remained valid
under New Jersey law even after the statute of limitations had
run. Huertas, 641 F.3d at 32. But even though the debt was still
7
owed, Huertas “ha[d] a complete legal defense against having
to pay it.” Id. Next, we explained that “when the expiration of
the statute of limitations does not invalidate a debt, but merely
renders it unenforceable, the FDCPA permits a debt collector
to seek voluntary repayment of the time-barred debt so long as
the debt collector does not initiate or threaten legal action in
connection with its debt collection efforts.” See id. at 32–33. In
reaching this conclusion, we cited with approval the Eighth
Circuit’s decision in Freyermuth v. Credit Bureau Services,
Inc., 248 F.3d 767, 771 (8th Cir. 2001). Consistent with
Freyermuth, “Huertas’s FDCPA claim hinge[d] on whether
[the collection] letter threatened litigation,” as “analyzed from
the perspective of the ‘least sophisticated debtor.’” Huertas,
641 F.3d at 33 (quoting Brown, 464 F.3d at 453). We
concluded that the letter—which informed Huertas that his
debt had been reassigned and requested that he contact the
agency to “resolve this issue”—contained no such
impermissible threat. Id.
Thus, Huertas stands for the proposition that debt
collectors do not violate 15 U.S.C. § 1692e(2)(A) when they
seek voluntary repayment of stale debts, so long as they do not
threaten or take legal action. But the FDCPA sweeps far more
broadly than the specific provision found in § 1692e(2)(A). It
prohibits “any false, deceptive, or misleading representation”
associated with debt-collection practices. 15 U.S.C. § 1692e
(emphasis added). Accordingly, this appeal requires us to
decide whether collection letters may run afoul of the FDCPA
by misleading or deceiving debtors into believing they have a
legal obligation to repay time-barred debts even when the
letters do not threaten legal action.
D
8
Since Huertas, three other United States Courts of
Appeals have addressed the question presented in this appeal.
All three have determined that, even absent threats of litigation,
it is plausible that offers to “settle” time-barred debts could
mislead the least-sophisticated debtor.
The first of the three decisions is McMahon v. LVNV
Funding, LLC, 744 F.3d 1010 (7th Cir. 2014). In McMahon,
the Seventh Circuit held that an offer to settle a time-barred
debt may violate the FDCPA if it “uses language . . . that would
mislead an unsophisticated consumer into believing that the
debt is legally enforceable.” Id. at 1020. In particular, the court
observed that “a settlement offer on a timebarred debt implies
that the creditor could successfully sue on the debt.” Id. at
1022; see also id. at 1021 (“If a consumer received an ‘offer
for settlement’ and searched on Google to see what is meant by
‘settlement,’ she might find the Wikipedia entry for ‘settlement
offer,’” which includes a discussion of civil lawsuits).
Accordingly, “[i]f unsophisticated consumers believe either
that the settlement offer is their chance to avoid court
proceedings where they would be defenseless, or if they
believe that the debt is legally enforceable at all, they have been
misled, and the debt collector has violated the FDCPA.” Id. at
1022. The McMahon court also stated that the Act “cannot
bear” any reading requiring a threat of litigation, noting that
“[t]he plain language of the FDCPA prohibits not only
threatening to take actions that the collector cannot take, but
also the use of any false, deceptive, or misleading
representation.” Id. at 1020–21.
A year after McMahon, the Sixth Circuit in Buchanan
v. Northland Group, Inc. held that a settlement offer could
“plausibly mislead an unsophisticated consumer into thinking
her lender could enforce the debt in court.” 776 F.3d 393, 395
9
(6th Cir. 2015). The court supported this conclusion by looking
to definitions of the terms “settle,” “settlement,” and
“settlement agreement” in six formal and informal dictionaries.
Id. at 399 (providing direct quotations from Webster’s Third
New International Dictionary, The Oxford English Dictionary
Online, The American Heritage Dictionary of the English
Language, Wiktionary, Dictionary.com, and Black’s Law
Dictionary). Though each source provided numerous
definitions, they all included one that referred to the conclusion
and/or the avoidance of a lawsuit. Id. And like McMahon, the
Buchanan court observed that “the addition of the term
‘misleading’ confirms[ that] the statute outlaws more than just
falsehoods[,] . . . [such that] even a true statement may be
banned for creating a misleading impression.” Id. at 396
(citation omitted). After Buchanan, the Fifth Circuit joined the
chorus, endorsing the same view expressed by the Sixth and
Seventh Circuits. Daugherty v. Convergent Outsourcing, Inc.,
836 F.3d 507, 513 (5th Cir. 2016).
Although we are not bound by these precedents of our
sister courts, we are persuaded that their considered view is the
best interpretation of the FDCPA. As the Seventh Circuit noted
in McMahon, construing the Act to require a threat of legal
action for any FDCPA violation interposes a mandate that is
not found in its text. 744 F.3d at 1020–21. Section 1692e
prohibits three discrete categories of conduct: false,
misleading, or deceptive representations. So adding a “threat
of litigation” requirement to all time-barred debt-collection
efforts curtails the reach of the Act by excising conduct
otherwise covered by the terms “deceptive” or “misleading.”
Common sense, our case law, and traditional tools of statutory
interpretation foreclose such a construction.
10
For example, “in certain contexts[,] a completely
accurate statement can be deceptive or misleading.”
Campuzano-Burgos, 550 F.3d at 301; see also Buchanan, 776
F.3d at 396 (noting that the term “misleading” bans “more than
just falsehoods”). Moreover, a communication subject to the
FDCPA is deceptive if “it can be reasonably read to have two
or more different meanings, one of which is inaccurate.” Id. at
298 (quoting Rosenau, 539 F.3d at 222). Thus, conduct by a
debt collector can be unlawfully misleading or deceptive while
still falling short of an explicit threat of litigation. Since our
task is “to give effect, if possible, to every clause and word of
a statute,” Duncan v. Walker, 533 U.S. 167, 174 (2001)
(quoting United States v. Menasche, 348 U.S. 528, 538–39
(1955)), we decline Allied’s invitation to construe the FDCPA
in a manner that narrows the broad language Congress enacted.
See Brown, 464 F.3d at 453 (noting that we “construe [the
FDCPA’s] language broadly, so as to effect its purpose”); see
also Disabled in Action v. Se. Pa. Transp. Auth., 539 F.3d 199,
210 (3d Cir. 2008) (noting the Court “assume[s] . . . that every
word in a statute has meaning and avoid[s] interpreting one part
of a statute in a manner that renders another part superfluous”).
We also agree with our sister courts that, in the specific
context of a debt-collection letter, the least-sophisticated
debtor could be misled into thinking that “settlement of the
debt” referred to the creditor’s ability to enforce the debt in
court rather than a mere invitation to settle the account. App.
37. See Buchanan, 776 F.3d at 395; McMahon, 744 F.3d at
1021. As the Buchanan court’s survey of sources suggests,
multiple dictionaries define “settle” to refer not only to
“settling accounts,” but also to the avoidance or resolution of
11
litigation. 4 See 776 F.3d at 399. Moreover, the chance that the
letter could mislead the least-sophisticated debtor increases
with the use of phrases such as “settlement offer,” which
Black’s Law Dictionary defines as “[a]n offer by one party to
settle a dispute amicably (usu[ally] by paying money) to avoid
or end a lawsuit or other legal action.” (10th ed. 2014).
These textual sources and the reasoning of the Fifth,
Sixth, and Seventh Circuits indicate that Tatis has “state[d] a
facially plausible claim for relief.” Caprio v. Healthcare
Revenue Recovery Grp., LLC, 709 F.3d 142, 147 (3d Cir.
2013). Because the words “settlement” and “settlement offer”
could connote litigation, the least-sophisticated debtor could be
4
Our own survey confirms this point. Settle, CONCISE
OXFORD DICTIONARY OF CURRENT ENGLISH (7th ed. 1982)
(“[T]erminate (lawsuit) by mutual agreement.”); Settle,
AMERICAN HERITAGE DICTIONARY OF THE ENGLISH
LANGUAGE (4th ed. 2000) (“To decide (a lawsuit) by mutual
agreement of the involved parties without court action.”; “To
come to an agreement, especially to resolve a lawsuit out of
court.”); Settle, WEBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY OF THE ENGLISH LANGUAGE UNABRIDGED (3d
ed. 1993) (“[T]o conclude (a lawsuit) by agreement between
the parties usu. out of court.”); see also Settlement, AMERICAN
HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (4th ed.
2000) (“An arrangement, adjustment, or other understanding
reached, as in financial or business proceedings: a divorce
settlement.”); Settlement, WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE
UNABRIDGED (3d ed. 1993) (“[P]ayment or adjustment of an
account: satisfaction of a claim by agreement often with less
than full payment.”).
12
misled into thinking Allied could legally enforce the debt. Cf.,
e.g., Huertas, 641 F.3d at 33 (analyzing a letter using the more
general verb “to resolve”). We recognize that some debtors
might properly interpret Allied’s letter as referring solely to the
settlement of an account. See Buchanan, 776 F.3d at 400–01
(Kethledge, J., dissenting) (noting that many debtors receive
multiple collection letters without a suit ever being brought).
But others may not. See Wilson, 225 F.3d at 354 (noting that
the “least sophisticated debtor” standard is lower than the
“reasonable debtor” standard). Both the context in which the
letter is received and the available textual sources indicate that,
far from being a “bizarre or idiosyncratic interpretation[]” not
covered by the least-sophisticated debtor standard, interpreting
the settlement offer as creating a legally-enforceable obligation
is a mistake even a debtor “willing[] to read with care” might
make. Campuzano-Burgos, 550 F.3d at 299 (quoting Rosenau,
539 F.3d at 221).
In sum, because we conclude that the least-sophisticated
debtor could plausibly be misled by the specific language used
in Allied’s letter, we will vacate the District Court’s order
granting Allied’s motion to dismiss and remand for further
proceedings. In doing so, we reiterate what we said both in
Huertas and elsewhere: standing alone, settlement offers and
attempts to obtain voluntary repayments of stale debts do not
necessarily constitute deceptive or misleading practices. See
Huertas, 641 F.3d at 32–33; see also Campuzano-Burgos, 550
F.3d at 299 (noting that “[t]here is nothing improper about
making a settlement offer”). Nor do we impose any specific
mandates on the language debt collectors must use, such as
requiring them to explicitly disclose that the statute of
limitations has run. We do not, therefore, hold that the use of
the word “settlement” is “misleading as a matter of federal
13
law.” Buchanan, 776 F.3d at 400 (Kethledge, J., dissenting).
Rather, in keeping with the text and purpose of the FDCPA, we
merely reiterate that any such letters, when read in their
entirety, must not deceive or mislead the least-sophisticated
debtor into believing that she has a legal obligation to pay the
time-barred debt. See, e.g., Caprio, 709 F.3d at 149 (noting that
“even the ‘least sophisticated debtor’ is expected to read any
notice in its entirety”); Huertas, 641 F.3d at 33 (examining the
specific language used in the letter from the perspective of the
least-sophisticated debtor); Campuzano-Burgos, 550 F.3d at
300 (analyzing letters “as a whole”).
III
For the reasons stated, we will vacate the District
Court’s order granting Allied’s motion to dismiss and remand
the case for further proceedings consistent with this opinion.
14