Earlier this week, the Sixth Circuit issued a published opinion in Buchanan v. Northland Group, a putative class action against Northland alleging violations of the Fair Debt Collection Practices Act (FDCPA). In so doing, the Sixth Circuit reversed the district court’s dismissal of the case and remanded it for further proceedings, and in the process delineated the pleading standard for FDCPA claims in the Circuit.
As the court described, LVNV Funding purchases uncollectible debts at a discount from the various companies holding them, and then pays Northland Group to collect them. The present case started when Northland sent Buchanan a letter informing her that LVNV was holding a debt Buchanan owed to the tune of $4,700. The letter offered a “settlement” of the debt for about $1,600. The problem, however, was that the Michigan statute of limitations had run on the debt, and that any payment Buchanan made on the debt—less than the full amount—would restart the statute of limitations. Alleging that a “settlement offer” in light of this constituted a “false, deceptive, or misleading” debt-collection practice prohibited by the FDCPA, Buchanan sued on behalf of herself and others similarly situated.
The district court dismissed Buchanan’s complaint, concluding that, as a matter of law, Northland’s letter could not be “misleading” under the FDCPA. In reversing, the Sixth Circuit noted three points about the letter and the FDCPA. First, whether a letter is misleading under the FDCPA is a question of fact for a jury. Starting from that presumption, the court also noted that “the hurdle to proceed from pleading to discovery remains a low one,” and this favored Buchanan. Second, the court pointed out that Buchanan was prepared to present evidence as to how the letter was misleading, including a psychology expert and the Federal Trade Commission’s current studying of the issue. Finally, as to the issue of whether Northland’s letter was misleading, the court quoted extensively from dictionary definitions of “settlement” and held that Buchanan “offer[ed] a plausible theory of consumer deception and confusion that “nudge[d] her claims across the line from conceivable to plausible.”
However, the panel was not in agreement on these points. Judge Kethledge penned a firm dissent, in which he stated that he would have rejected Buchanan’s suit as a matter of law, maintaining that she sought damages under the FDCPA for “the trouble of reading a letter that offered her a discount on an entirely valid debt that for years she failed to pay.” Calling Buchanan’s reading of Northland’s letter “gossamer,” Judge Kethledge reasoned that her chain of inferences—from “settlement” to “litigation” to “enforceable debt” to “misleading representation under the FDCPA—was not only tenuous, but an implausible reading of the letter.
Debt collection can be a thorny issue, and although merely at the pleadings stage, this suit prompted a thoroughly litigated appeal and split decision by the Sixth Circuit. As such, one should be cautious not to read too much into a fact-dependent case that turns on the wording of a letter, but practitioners in the circuit should make note of the court’s view of the “low hurdle” from “pleading to discovery” that could impact future FDCPA cases. This case also reinforces the care with which such letters should be drafted to avoid litigation (meritless or not).