The campaign to establish liability under the Fair Debt Collection Practices Act (FDCPA) in connection with subrogation took an interesting turn recently, but ultimately reached another dead end. The federal judiciary has made it clear, time and again, that the FDCPA does not apply to third-party subrogation claims because they are not “debts” as defined by the Act. Yet necessity is the mother of invention and so these futile lawsuits against the subrogation industry continue.
The most recent offensive, Kazmi v. CCS Commercial, LLC, was launched – and vanquished – in New Jersey. D.N.J. Case No. 3:14-CV-06132, 2015 WL 4392836 (July 15, 2015). Acting on behalf of Progressive, CCS Commercial, LLC, sent two letters to the plaintiff, Hasan Kazmi, seeking payment of a subrogation claim arising out of a motor vehicle accident. Kazmi informed Progressive that he was not involved in the accident and did not own the vehicle. Progressive instructed CCS to close its file and CCS sent Kazmi a letter to inform him that it was doing so, which included the following language:
“Even though this matter is closed, this office is still required by law to make the following statement on any/all written communications: this is an attempt to collect a debt and any information obtained will be used for that purpose. This communication was sent by a debt collector.” Id at *1.
Less than three months later, Kazmi filed suit in New Jersey state court alleging that CCS violated the FDCPA by sending him dunning letters without the validation notices required by the FDCPA. He claimed to have suffered “personal humiliation, embarrassment, mental anguish, and emotional distress” as a result. CCS promptly removed the action to federal court and filed a Motion for Judgment on the Pleadings.
Relying on the long-standing precedents of Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367 (11th Cir. 1998) and Zimmerman v. HBO Affiliate Group, 834 F.2d 1163 (3rd Cir. 1987), CCS argued that the subrogation claim is not a “debt” under the FDCPA. The alleged obligation to pay did not arise out of a “transaction,” but rather arose from a tort. Thus, the FDCPA does not apply. Kazmi cleverly pounced on the language of the CCS closing letter, seeking to use it as a shortcut around the well-established case law that stood against him. He argued that CCS should be bound by its “admission” that it is a “debt collector” and “required by law” to comply with the FDCPA. Kazmi also sought to distinguish his case by asserting that “only subrogation claims against tortfeasors fall outside the FDCPA” and he was not the tortfeasor.
The court granted CCS’s motion. In keeping with prevailing law, the court recognized that there must be a “debt” for the FDCPA to be applicable, which must arise out of a “transaction.” Kazmi at *2. Finding Hawthorne highly persuasive, the court reasoned that because CCS’s attempt to collect from Kazmi arose out of an automobile accident, which was not a transaction, there was no “debt” under the FDCPA. Id. Furthermore, the court was “not persuaded by the Plaintiff’s argument that his claim is different because he was not the tortfeasor in the accident…. The fact that Kazmi was not the tortfeasor in his accident does not change the nature of this subrogation claim.” Id. As for Kazmi’s claim that CCS “opted-in” to the FDCPA, the court declined to address that issue because its ruling on the “debt” requirement was dispositive.
Kazmi v. CCS Commercial, LLC is a prime example of the kind of opportunism that has caused the issue of third-party subrogation and the FDCPA to be needlessly litigated over and over, only to reach the exact same holding: the FDCPA does not apply to subrogation claims against third parties. No matter how many factual variations plaintiffs seize upon, they cannot recast torts as “transactions” or conjure “debts” out of negligence. The obsessive pursuit of that “legal alchemy” is no less pointless and futile as trying to turn lead into gold. Unfortunately for the subrogation industry, the allure of large attorney fee awards is likely enough to keep inspiring vexatious litigation at the expense of innocent defendants and the courts.
If you have any questions regarding this article or subrogation in general, please contact Tim Mentkowski at [email protected]