17‐1650‐cv Taylor v. Fin. Recovery Servs., Inc.

In the United States Court of Appeals For the Second Circuit ________

AUGUST TERM, 2017

ARGUED: JANUARY 24, 2018 DECIDED: MARCH 29, 2018

No. 17‐1650‐cv

CHRISTINE M. TAYLOR, CHRISTINA KLEIN, Plaintiffs‐Appellants,

v.

FINANCIAL RECOVERY SERVICES, INC., Defendant‐Appellee. ________

Appeal from the United States District Court for the Southern District of New York. No. 16‐cv‐4685 – Lorna G. Schofield, District Judge. ________

Before: LEVAL, CALABRESI, and CABRANES, Circuit Judges. ________

Appellants Christine M. Taylor and Christina Klein allege that debt collection notices they received from Appellee Financial Recovery Services, Inc. were “misleading” in violation of Section 1692e of the Fair Debt Collection Practices Act because the notices did not indicate whether their debts were accruing interest and fees. As no such interest or fees were accruing, we affirm the district court’s May 19, 2017 award of summary judgment in favor of Financial Recovery Services. DAVID M. BARSHAY, Baker Sanders, L.L.C., Garden City, NY, for Plaintiffs‐ Appellants.

JOHN P. BOYLE (Bradley R. Armstrong, on the brief), Moss & Barnett PA, Minneapolis, MN, for Defendant‐Appellee.

CALABRESI, Circuit Judge:

Section 1692e of the Fair Debt Collection Practices Act makes it

unlawful for a debt collector to “use any false, deceptive, or

misleading representation or means in connection with the collection

of any debt.” 15 U.S.C. § 1692e. This case asks whether it is misleading

within the meaning of Section 1692e for a debt collection letter to state

the amount of a debt without disclosing that the debt, which once

accrued interest or fees, no longer does so. We hold that such a notice

complies with Section 1692e and affirm the May 19, 2017 judgment of

the district court.

I.

Christine M. Taylor and Christina Klein are New York

residents who fell into credit card debt with Barclays Bank. After they

defaulted on their payments to Barclays, the bank placed their debts

with Financial Recovery Services, Inc. (“FRS”), a collection agent,

which the bank instructed not to accrue interest or fees on the debts.

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FRS thereafter sent a series of collection notices to Taylor and Klein.

Each notice to Taylor stated an identical “balance due” of $599.98. J.A.

137‐142. The notices to Klein likewise all stated an unchanging

“balance due,” in her case $3,171.12. J.A. 36‐43. None of the notices,

however, included any statement addressing whether those balances

were accruing interest or fees. Neither Taylor nor Klein made any

payments to FRS in connection with their debts prior to filing

individually for Chapter 7 bankruptcy, at which point FRS closed

their accounts.

On June 20, 2016, Taylor and Klein brought suit against FRS in

the United States District Court for the Southern District of New York,

alleging that its collection notices were “false, deceptive, or

misleading” within the meaning of Section 1692e of the FDCPA. In

making this argument, Taylor and Klein relied heavily on our

decision in Avila v. Riexinger & Associates, LLC,

(2d Cir.

2016), where we held that a debt collector violates the FDCPA by

stating the “current balance” of a consumer’s debt without disclosing

that the balance is increasing due to the accrual of interest or fees.

During discovery, FRS produced unrebutted evidence that

neither Taylor’s nor Klein’s debt had accrued interest or fees during

the time those debts were placed with the company. FRS then moved

for summary judgment, arguing that, in stating the amount of Taylor

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and Klein’s debts, it was not obligated to add explicitly that no

interest or fees were accruing.

The district court agreed and, on May 19, 2017, entered

judgment in favor of FRS. Taylor and Klein filed this appeal the same

day.

II.

In determining whether a collection notice violates Section

1692e, “we are guided by two principles of statutory construction.”

Avila,

. The first principle is that the FDCPA must be

construed liberally to effectuate its stated purpose—i.e., “to eliminate

abusive debt collection practices by debt collectors, to insure that

those debt collectors who refrain from using abusive debt collection

practices are not competitively disadvantaged, and to promote

consistent State action to protect consumers against debt collection

abuses.”

(e).

The second principle is that collection notices are to be looked

at from the perspective of the “least sophisticated consumer.” Avila,

. That is, “we ask how the least sophisticated

consumer—one not having the astuteness of a Philadelphia lawyer or

even the sophistication of the average, everyday, common

consumer—would understand the collection notice.”

(internal

quotation marks omitted). Pursuant to this standard, “a collection

notice can be misleading if it is open to more than one reasonable

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interpretation, at least one of which is inaccurate.”

(internal

quotation marks omitted).

Taylor and Klein’s primary argument is that FRS’s collection

notices were misleading within the meaning of Section 1692e because

the least sophisticated consumer could have interpreted them to

mean either that interest and fees on the debts in question were

accruing or that they were not accruing. In effect, they argue that a

debt collector commits a per se violation of Section 1692e whenever it

fails to disclose whether interest or fees are accruing on a debt. Taylor

and Klein contend that our holding in Avila supports them in this

argument.

They are mistaken. In Avila, we found a collection notice to be

misleading because “[a] reasonable consumer could read the notice

and be misled into believing that she could pay her debt in full by

paying the amount listed on the notice,” whereas, in reality, such a

payment would not settle the debt.

. “The debt collector could

still seek the interest and fees that accumulated after the notice was

sent but before the balance was paid,” as well as any interest or fees

that accumulated thereafter.

This was no theoretical concern. One

of the plaintiffs in Avila had paid the stated balance of her debt only

to find herself still on the hook for an unpaid balance that was

accumulating interest at the alarming rate of 500% per annum.

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The collection notices FRS sent to Taylor and Klein, which

stated their respective balances due without discussing interest or

fees, could likewise have been read to mean that prompt payment of

the amounts stated would satisfy the debts in question. The difference

is that, while that message was prejudicially misleading on the facts

of Avila, on the facts of this case it was accurate: prompt payment of

the amounts stated in Taylor’s and Klein’s notices would have satisfied

their debts.

Of course, being informed that their debts were not accruing

interest or fees could have been advantageous to Taylor and Klein, as

it would have alerted them to the fact that they could delay

repayment without their debts increasing. Thus, the only harm that

Taylor and Klein suggest a consumer might suffer by mistakenly

believing that interest or fees are accruing on a debt is being led to

think that there is a financial benefit to making repayment sooner

rather than later. This supposed harm falls short of the obvious

danger facing consumers in Avila.

It is hard to see how or where the FDCPA imposes a duty on

debt collectors to encourage consumers to delay repayment of their

debts. And requiring debt collectors to draw attention to the fact that

a previously dynamic debt is now static might even create a perverse

incentive for them to continue accruing interest or fees on debts when

they might not otherwise do so. Construing the FDCPA in light of its

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consumer protection purpose, we hold that a collection notice that

fails to disclose that interest and fees are not currently accruing on a

debt is not misleading within the meaning of Section 1692e.1

Taylor and Klein object that this interpretation of Section 1692e

conflicts with our recent decision in Carlin v. Davidson Fink LLP,

(2d Cir. 2017). That case concerned a debt collector’s

obligation under Section 1692g of the FDCPA to state “the amount of

the debt” within five days of its initial communication with a

consumer. 15 U.S.C. § 1692g. In Carlin, we explained that a collection

notice fails to satisfy Section 1692g if “it omits information allowing

the least sophisticated consumer to determine the minimum amount

she owes at the time of the notice, what she will need to pay to resolve

the debt at any given moment in the future, and an explanation of any

fees and interest that will cause the balance to increase.”

.

Contrary to Taylor and Klein’s objection, our decision today

reads Sections 1692e and 1692g in harmony. That is, if a collection

notice correctly states a consumer’s balance without mentioning

interest or fees, and no such interest or fees are accruing, then the

1 In so holding, we join the Seventh Circuit, which held: ”If the debt collector is trying to collect only the amount due on the date the letter is sent, then he complies with the Act by stating the ‘balance’ due, stating that the creditor ‘has assigned your delinquent account to our agency for collection,’ and asking the recipient to remit the balance listed—and stopping there, without talk of the ‘current’ balance.” Chuway v. Nat’l Action Fin. Serv., Inc.,

(7th Cir. 2004).

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notice will neither be misleading within the meaning of Section 1692e,

nor fail to state accurately the amount of the debt under Section 1692g.

If instead the notice contains no mention of interest or fees, and they

are accruing, then the notice will run afoul of the requirements of both

Section 1692e and Section 1692g.

III.

Taylor and Klein briefly raise two additional challenges to the

district court’s grant of summary judgment in favor of FRS, neither of

which we find persuasive. They first argue that Barclays continued to

accrue interest on their debts even after those debts were placed with

FRS. If true, that would bring this case squarely within the ambit of

Avila. But Taylor and Klein failed to create a genuine issue of fact in

this regard before the district court, instead arguing that “whether

the[ir] accounts were actually accruing interest and fees at the time

they were with [FRS] is irrelevant.” J.A. 362. They cannot escape

summary judgment by changing tactics on appeal.

Taylor and Klein fare no better with their argument that FRS’s

notices were misleading because, even if Barclays did not accrue post‐

placement interest on their debts, it nonetheless retained the right to

do so. Even if such a right existed, FRS’s collection notices were not

misleading because no interest or fees were being charged and Taylor

and Klein could have satisfied their debts by making reasonably

prompt payment of the amounts stated in the notices. In other words,

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the debts remained static long enough to permit Taylor and Klein to

satisfy them through prompt repayment of their respective balances

due, and, as we have already explained, failing to disclose that a debt

is static is not misleading within the meaning of Section 1692e.

The district court’s May 19, 2017 grant of summary judgment

in favor of FRS is AFFIRMED.

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