Miller, Kevin v. McCalla Raymer ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3263
Kevin Miller,
Plaintiff-Appellant,
v.
McCalla, Raymer, Padrick, Cobb, Nichols,
and Clark, L.L.C., and Echevarria, McCalla,
Raymer, Barrett, and Frappier,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 5563--Elaine E. Bucklo, Judge.
Argued March 31, 2000--Decided June 5, 2000
Before Posner, Chief Judge, and Ripple and Rovner,
Circuit Judges.
Posner, Chief Judge. This is a suit under the
Fair Debt Collection Practices Act, 15 U.S.C.
sec.sec. 1692 et seq., against two related law
firms engaged in debt collection. The plaintiff
(the debtor) claims that the defendants violated
the Act by failing to state "the amount of the
debt" in the dunning letter of which he
complains. See sec. 1692g(a)(1). They reply that
they did state the amount and that anyway the
letter is outside the scope of the Act because
they were trying to collect a business debt
rather than a consumer debt, and the Act is
limited to the collection of consumer debts. sec.
1692a(5); First Gibraltar Bank, FSB v. Smith, 62
F.3d 133 (5th Cir. 1995). The district court
granted summary judgment for the defendants on
the latter ground, and let us start there.
The plaintiff bought a house in Atlanta in 1992,
and took out a mortgage. He lived in the house
until 1995, when he accepted a job in Chicago;
from then on, he rented the house. He received
the dunning letter from one of the defendant law
firms on behalf of the mortgagee in 1997. By this
time, renting the property to strangers, the
plaintiff was making a business use of the
property and so the mortgage loan was financing a
business rather than a consumer debt. But the
plaintiff argues that the relevant time for
determining the nature of the debt is when the
debt first arises, not when collection efforts
begin. The defendants riposte that since the Act
under which the plaintiff is suing, unlike the
Truth in Lending Act, governs debt collection,
the relevant time is when the attempt at
collection is made. Oddly, there are no reported
appellate decisions on the issue, though it was
assumed in Bloom v. I.C. System, Inc., 972 F.2d
1067, 1068-69 (9th Cir. 1992), that the relevant
time is when the loan is made, not when
collection is attempted.
The language of the statute favors this
interpretation. "Debt" is defined as "any
obligation or alleged obligation of a consumer to
pay money arising out of a transaction in which
the money, property, insurance, or services which
are the subject of the transaction are primarily
for personal, family, or household purposes."
sec. 1692a(5). The defendants don’t deny that the
plaintiff is a "consumer," even though he is in
the "business" of renting his house (they can’t
deny this, because "the term ’consumer’ means any
natural person obligated or allegedly obligated
to pay any debt," sec. 1692a(3)), and the
antecedent of the first "which" in the clause "in
which the money, property, insurance, or services
which are the subject of the transaction are
primarily for personal, family, or household
purposes" is, as a matter of grammar anyway, the
transaction out of which the obligation to repay
arose, not the obligation itself; and that
transaction was the purchase of a house for a
personal use, namely living in it. Grammar
needn’t trump sense; the purpose of statutory
interpretation is to make sense out of statutes
not written by grammarians. But we cannot say
that it is senseless to base the debt collector’s
obligation on the character of the debt when it
arose rather than when it is to be collected. The
original creditor is more likely to know whether
the debt was personal or commercial at its
incipience than either the creditor or the debt
collector is to know what current use the debtor
is making of the loan (in this case, the
plaintiff is using the loan, in effect, to
generate income from the house that secures the
loan).
Against this the defendants argue that the
plaintiff’s interpretation creates a loophole.
Suppose the plaintiff had bought the house to use
as an office, and later converted it to personal
use; on the plaintiff’s interpretation of the Act
the debt collector would not have to give him the
statutory warnings. But this makes perfect sense.
The Act regulates the debt collection tactics
employed against personal borrowers on the theory
that they are likely to be unsophisticated about
debt collection and thus prey to unscrupulous
collection methods. See S. Rep. No. 382, 95th
Cong., 1st Sess. 2 (1977); Keele v. Wexler, 149
F.3d 589, 594 (7th Cir. 1998); McCartney v. First
City Bank, 970 F.2d 45, 47 (5th Cir. 1992).
Businessmen don’t need the warnings. A
businessman who converts a business purchase to
personal use does not by virtue of that
conversion lose his commercial sophistication and
so acquire a need for statutory protection. And
we agree with the plaintiff’s concession that if
a borrower for a personal use were to assign the
loan that financed that use to a business, the
debt would then arise out of the assignment,
rather than out of the original loan, and so the
Act would be inapplicable--rightly so since the
recipient of the dunning letter would be a
businessman, not a consumer.
So the Act is applicable and we move to the
question whether the defendants violated the
statutory duty to state the amount of the loan.
15 U.S.C. sec. 1692g(a)(1). The dunning letter
said that the "unpaid principal balance" of the
loan (emphasis added) was $178,844.65, but added
that "this amount does not include accrued but
unpaid interest, unpaid late charges, escrow
advances or other charges for preservation and
protection of the lender’s interest in the
property, as authorized by your loan agreement.
The amount to reinstate or pay off your loan
changes daily. You may call our office for
complete reinstatement and payoff figures." An
800 number is given.
The statement does not comply with the Act
(again we can find no case on the question). The
unpaid principal balance is not the debt; it is
only a part of the debt; the Act requires
statement of the debt. The requirement is not
satisfied by listing a phone number. It is
notorious that trying to get through to an 800
number is often a vexing and protracted
undertaking, and anyway, unless the number is
recorded, to authorize debt collectors to comply
orally would be an invitation to just the sort of
fraudulent and coercive tactics in debt
collection that the Act aimed (rightly or
wrongly) to put an end to. It is no excuse that
it was "impossible" for the defendants to comply
when as in this case the amount of the debt
changes daily. What would or might be impossible
for the defendants to do would be to determine
what the amount of the debt might be at some
future date if for example the interest rate in
the loan agreement was variable. What they
certainly could do was to state the total amount
due--interest and other charges as well as
principal--on the date the dunning letter was
sent. We think the statute required this.
In a previous case, in an effort to minimize
litigation under the debt collection statute, we
fashioned a "safe harbor" formula for complying
with another provision of the statute. Bartlett
v. Heibl, 128 F.3d 497, 501-02 (7th Cir. 1997);
see also Herzberger v. Standard Ins. Co., 205
F.3d 327, 331 (7th Cir. 2000). We think it useful
to do the same thing for the "amount of debt"
provision. We hold that the following statement
satisfies the debt collector’s duty to state the
amount of the debt in cases like this where the
amount varies from day to day: "As of the date of
this letter, you owe $___ [the exact amount due].
Because of interest, late charges, and other
charges that may vary from day to day, the amount
due on the day you pay may be greater. Hence, if
you pay the amount shown above, an adjustment may
be necessary after we receive your check, in
which event we will inform you before depositing
the check for collection. For further
information, write the undersigned or call 1-800-
[phone number]." A debt collector who uses this
form will not violate the "amount of the debt"
provision, provided, of course, that the
information he furnishes is accurate and he does
not obscure it by adding confusing other
information (or misinformation). E.g., Marshall-
Mosby v. Corporate Receivables, Inc., 205 F.3d
323, 326 (7th Cir. 2000); Bartlett v. Heibl,
supra, 128 F.3d at 500. Of course we do not hold
that a debt collector must use this form of words
to avoid violating the statute; but if he does,
and (to repeat an essential qualification) does
not add other words that confuse the message, he
will as a matter of law have discharged his duty
to state clearly the amount due. No reasonable
person could conclude that the statement that we
have drafted does not inform the debtor of the
amount due. Cf. Walker v. National Recovery,
Inc., 200 F.3d 500, 503 (7th Cir. 1999).
It remains to consider the independent argument
of one of the two defendant law firms that it is
not a "debt collector" within the meaning of the
statute. See sec. 1692a(6). The firm that sent
the dunning letter to the plaintiff is McCalla,
Raymer, Padrick, Cobb, Nichols & Clark, L.L.C.,
and the other firm is Echevarria, McCalla,
Raymer, Barrett & Frappier. The first firm, the
McCalla firm we’ll call it, is a partner in the
Echevarria firm. (The purpose of this unusual
arrangement, presumably, is to preserve the
McCalla firm’s limited liability, but the parties
do not discuss the purpose and it is not
material.) The Echevarria firm argues that it
should not be liable for its partner’s statutory
violation, analogizing its relation to its
partner as one of affiliated corporations and
pointing to the rule that, save in exceptional
circumstances not demonstrated here, one
affiliated corporation is not liable for the
debts of the other, e.g., Papa v. Katy
Industries, Inc., 166 F.3d 937 (7th Cir. 1999)--a
principle applicable to suits under the Fair Debt
Collection Practices Act. Pettit v. Retrieval
Masters Creditors Bureau, Inc., No. 99-1797, 2000
WL 558945, at *1 (7th Cir. May 9, 2000); White v.
Goodman, 200 F.3d 1016, 1019 (7th Cir. 2000);
Aubert v. American General Finance, Inc., 137
F.3d 976, 979-80 (7th Cir. 1998). The flaw is
that partners, unlike corporations, do not enjoy
limited liability. The liability of a partnership
is imputed to the partners, and so the plaintiff
was entitled to sue the partners as well as the
partnership. Bartlett v. Heibl, supra, 128 F.3d
at 499-500; Fla. Stat. sec. 620.8305(1) (the
Echevarria firm is a Florida partnership).
The judgment in favor of the defendants is
reversed and the case is remanded to the district
court for further proceedings consistent with
this opinion.
Reversed and Remanded.