For nearly twenty years, the plaintiffs’ bar and negligent third parties have been trying to use the Federal Debt Collection Practices Act (FDCPA) as a weapon against legitimate subrogation claims. While the fight continues, two recent federal district court decisions came down in favor of subrogation yet again. Both cases center on a third party’s attempt to dodge tort liability through the FDCPA. Holding to clear and well-reasoned precedents, both courts confirmed that tort claims are not “debts” under the FDCPA and, therefore, the Act does not apply to subrogation recovery efforts against the liable third parties.
In Foster v. Amarnek, 2014 WL 1961245 (M.D. Tenn. May 14, 2014), the plaintiff, Chelsea Foster, was in a motor vehicle accident with Grange Insurance Company’s insured, Ronald Roark. In pursuit of Grange’s subrogation claim, Douglas Knight & Associates (DKA) sent letters to Foster. One such letter stated that Foster may be legally responsible for Grange’s damages, and expressed DKA’s intent to report a violation of financial responsibility to the Department of Motor Vehicles requesting suspension of her driver’s license.
Foster claimed that she became severely depressed as a result of the letters and filed suit alleging violations of the FDCPA, negligent and intentional infliction of emotional distress, and even a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq. All four counts were dismissed on the defendants’ Motion for Judgment on the Pleadings.
The FDCPA issue had not yet been taken up by the Sixth Circuit, but the court found Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367 (11th Cir. 1998) very persuasive. The Act only applies to “debt collectors,” which by definition requires that one be in the business of collecting “debts” or regularly collects “debts.” 15 U.S.C. § 1692a(6). A “debt” is an obligation of a consumer to pay money arising out of a transaction. 15 U.S.C. § 1692a(5). In accordance with Hawthorne, an obligation to pay “thrust upon one as a result of no more than her own negligence” is not a “transaction” and therefore not a “debt.” Foster attempted to distinguish Hawthorne based on the harsh content of the letters she received, but the court stated that the tone “is beside the point; either the letter relates to a consumer debt, or it does not.”
As to the RICO claim, Foster alleged that the defendants, the CEO and COO of DKA, conspired to commit mail fraud. The court found that Foster’s allegations were “conclusory and speculative at best, and lack[ed] particularity.” Foster at page 7. The court further noted that while two predicate acts are necessary, they may not be sufficient to state a RICO claim. “Assuming that the two letters Plaintiff received in this case are proper predicate acts, they are insufficient to suggest that there exists acts that amount to or pose a threat of continued criminal activity as required to plead a RICO claim.” Id (internal quotations and citations omitted).
The court took an even dimmer view of the plaintiff’s emotional distress claims, specifically stating, “Plaintiff does not come close to adequately pleading an intentional emotional distress claim.” Id. Both intentional and negligent infliction of emotional distress require extreme and outrageous conduct by the defendant, and “a reasonable person, normally constituted, would be able to adequately cope with the mental stress engendered by receipt of the letters from DKA.” Id at page 8. Thus, the court disposed of the last of Foster’s claims.
The second case, Bartlett v. Blaser, Sorensen & Oleson, Chartered, 2014 WL 2780462 (D. Idaho June 19, 2014), involved a property subrogation claim against a plumber, Russell Bartlett, for water damage he allegedly caused to a home insured by Property & Casualty Insurance Company of Hartford. Following a series of demand letters to the plumber, and denials from his liability insurer, Hartford engaged the defendants, Blaser, to pursue the claim further. Blaser filed suit against the plumber in Bingham County, Idaho. The complaint’s allegations strongly resembled those of a debt collection action. While the litigation was still pending, Bartlett filed suit in the Idaho District Court seeking damages for violation of the FDCPA. He alleged that Blaser violated the Act by filing suit in a county other than the one in which he resided and by not giving thirty days written notice before filing suit.
Again, the court noted that “the FDCPA does not apply to all collection procedures; instead, the FDCPA regulates the collection of a specific type of debt defined in the statute.” Id at page 8. In this case, the Bartlett’s “potential obligation to pay damages resulting from the [subrogation] action does not arise out of such a “consensual transaction” involving “consumer-related goods or services;” rather, it arises out of [Bartlett’s] alleged negligence.” Id at page 9. The court found Hawthorne to be “an equal fit to these facts,” in spite of Bartlett’s argument that his plumbing services contract with Hartford’s insureds constituted the requisite consumer transaction. Id at page 10.
Bartlett also argued that the FDCPA should automatically apply because the complaint in the subrogation action (later amended) resembled a debt collection proceeding. He cited to several cases holding that the FDCPA applies not only to actually-incurred debts, but also debts alleged to have occurred. Id at page 11. Ultimately, the court found those cases distinguishable because they involved erroneous allegations of consumer debts. Id at page 12. “[T]he fact remains that the “debt” in question here is not one subject to the FDCPA.” Id. “[A]bsent legal authority allowing for the FDCPA’s application to legally non-covered debts solely by reason of contrary allegations,” the court was compelled “to decide as a threshold matter whether, in fact, the debt alleged is one recognized by the FDCPA. It is not.” Id. The court declined to exercise jurisdiction over Bartlett’s remaining state law claim for abuse of process.
The more interesting aspect of these cases is not necessarily their holdings. Over the course of sixteen years after Hawthorne was decided, the case has become nearly ubiquitous. Subrogation claims against third parties are not covered by the FDCPA. Foster and Bartlett arrive at the same conclusion by the same reasoning. More astounding is the fact that tortfeasors and their attorneys are still throwing themselves against the same jurisprudential wall. To be sure, most jurisdictions have not addressed the issue, so litigants are likely searching for a chink in the FDCPA armor. Given the solid logical and legal foundations of Hawthorne and its followers, however, they are unlikely to find one. Perhaps one day, when that door is finally closed, recipients of subrogation demands will stop wasting public resources with these smoke-and-mirrors FDCPA claims and simply defend themselves on the merits instead.
If you should have any questions regarding this article or subrogation in general, please contact Timothy Mentkowski at [email protected].