Offer to “Resolve” Time-Barred Debt States Fair Debt Collection Claim

The Eleventh Circuit took on a circuit-splitting issue under the Fair Debt Collection Practices Act in Holzman v. Malcolm S. Gerald & Associates, 2019 WL 1495642 (11th Cir. Apr. 5, 2019).  The case arose from the defendants’ efforts to collect a time-barred debt.  The plaintiff alleged that the collection letter he received was “false, deceptive, or misleading,” in violation of FDCPA’s § 1692e, and that the general practice of attempting to collect on time-barred debts violated FDCPA’s § 1692f’s prohibition of unfair or unconscionable practices.  The plaintiff also alleged the practices violated the Florida Consumer Collection Practices Act’s prohibition against asserting legal rights known not to exist.  The district court dismissed the complaint, finding no FDCPA violation and declining to exercise supplemental jurisdiction over the state law claim.

The Eleventh Circuit, in an opinion by Judge Julie Carnes, reversed in part.  The collection letter in question offered to “resolve” the plaintiff’s time-barred debt, without disclosing that it was time-barred and without threatening any litigation.  In evaluating whether the plaintiff alleged a plausible claim under either subsection of the FDCPA, the court applied its previously adopted “least-sophisticated consumer” standard.  Turning first to the claimed violation of § 1692e, the court noted the uniform agreement among courts that a threat to take legal action to collect a time-barred debt violates that subsection.  Differences among the circuits arise when the letter offers to “settle” a time-barred debt or, as here, to “resolve” the debt.  The Third and Eighth Circuits have found that such allegations state no claim.  Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 32–33 (3d Cir. 2011); Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir. 2001).  The Fifth, Sixth, and Seventh Circuits disagree, holding that an offer to “settle” a time-barred debt, without an accompanying disclosure that the debt is judicially unenforceable, plausibly could mislead an unsophisticated consumer as to the legal unenforceability of the debt.  Daugherty v. Convergent Oursourcing, Inc., 836 F.3d 507, 511 (5th Cir. 2016); Buchanan v. Northland Grp., Inc., 776 F.3d 393, 399–400 (6th Cir. 2015); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020–21 (7th Cir. 2014).  And the Third Circuit recently called its own decision into question, according to the Eleventh Circuit. The Eleventh Circuit joined the plurality of courts in concluding that the “resolve the debt” language, taken in its entirety, could plausibly deceive or mislead an unsophisticated consumer as to the legal status of the debt, even in the absence of an express threat of litigation.  But the court summarily rejected the plaintiff’s § 1692f claim that attempting to collect a time-barred debt is an unconscionable practice, finding no support for that position.  And given the survival of a federal claim, the court reinstated the Florida Act claim for consideration on the merits on remand.

Posted by Tom Byrne.

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