Dear constituency list members of the Insolvency Law Committee:
The Ninth Circuit has held that a debt collector cannot effectively destroy a consumer's FDCPA claim by acquiring it at an execution sale following a default judgment, because the FDCPA impliedly preempts that strategy. [Arellano vs. Clark County Collection Service, LLC, 2017 Westlaw 5505117 (9th Cir.).]
FACTS: A collection agency obtained a default judgment in state court against a consumer for roughly $800. She filed a separate suit in federal court against the collection agency, claiming that its practices had violated the Fair Debt Collection Practices Act ("FDCPA").
The collection agency then requested the state court to issue a writ of execution against the consumer in the hope of executing on her FDCPA cause of action, since that claim was one of her assets subject to execution. The state court issued the requested writ of execution; the sheriff sold her FDCPA claim in an auction. The successful bidder was the collection agency, which bought her claims for $250.
The collection agency then moved in federal district court to dismiss her lawsuit, on the ground that she no longer owned the claim. The district court dismissed her suit.
REASONING: The Ninth Circuit reversed, holding that the FDCPA preempted the collection agency's acquisition of the consumer's claim under the FDCPA. The collection agency argued, however, that the FDCPA did not specifically address this issue. But the court held that the goals and policies of the FDCPA would be thwarted if the collection agency could acquire the consumer's claim and thereby destroy it:
In addition to evading liability and preventing [the consumer] from pursuing her potential federal claims, the collection agency has literally used the execution mechanism to collect the debt from [the consumer], and argues that she “has received the benefit of [the $250] reduction in her judgment.” But a debt collector cannot be allowed to use state law strategically to execute on a debtor’s FDCPA claims against it under the guise of legitimate debt collection. Though the FDCPA does preserve debt collectors’ rights to collect what they are owed, the Act does not “authorize the bringing of legal actions by debt collectors.” See 15 U.S.C. §1692i(b). Debt collectors cannot evade the restrictions of the Act by forcing a debtor’s claims to be auctioned, acquiring the claims, and dismissing them. To allow otherwise would thwart enforcement of the FDCPA and undermine its purpose.
AUTHOR'S COMMENT: The court's heart is in the right place, but I'm not so sure about its reading of the FDCPA. The court cites §1692i(b) for the proposition that the Act "does not ‘authorize the bringing of legal actions by debt collectors.’" The court has disregarded §1692i(a), which expressly describes the proper venue for suits by debt collectors. Therefore, although the FDCPA does not itself provide any additional authorization for suits by debt collectors, §1692i(b) does not in any way prohibit suits by debt collectors. That subsection cannot logically serve as the basis for holding that the FDCPA completely preempts the collection agency's right to bring suit and to seek an application for a writ of execution as authorized by state law.
The court also mentioned (but did not discuss) §1692n, which provides:
This subchapter does not annul, alter, or affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to debt collection practices, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency.
I do not see how state law in this case was inconsistent with any express provision of the FDCPA, even though we all understand that the collection agency's clever gambit was inherently distasteful. I doubt whether this case merits certiorari; but if this were to land in front of the Supreme Court as it is currently constituted, I think that the ascendant "textualists" would come out the other way.
These materials were written by Professor Dan Schechter of Loyola Law School, Los Angeles