by Bret Chaness, Esq.

Rubin Lublin, LLC *

USFN Member (AL, GA, MS, TN)

Almost one and a half years after a panel of the Eleventh Circuit issued its original opinion in Hunstein v. Preferred Collection and Management Services, Inc., the en banc court has concluded that the panel got it wrong. Hunstein involved a debt collector that “electronically transmitted to Compumail [its mailing vendor] certain information about [him], including, among other things: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that his debt concerned his son’s medical treatment, and (5) his son’s name. Compumail used that information to generate and send a dunning letter to Hunstein.” Hunstein sued Preferred, alleging that it violated the FDCPA prohibition on communicating with third parties in connection with the collection of a debt. See 15 U.S.C. § 1692c(b). The district court dismissed the case, concluding that Preferred’s communications to Compumail were not “in connection with the collection of any debt.” Despite Hunstein not alleging that he had any actual damages because of the alleged violation, the district court did not address whether he had Article III standing.

The three-judge panel issued its original opinion in April 2021. In that decision, the panel raised the question during briefing as to whether Hunstein had Article III standing because he alleged only a statutory violation without suffering actual harm. The panel noted that, in such a situation, standing could only be established if the “statutory violation at issue led to a type of harm that has historically been recognized as actionable” and “that the fit between the new statute and a pedigreed common-law cause of action need not be perfect, but we are called to consider at a minimum whether the harms match up between the two.” The panel concluded that the statutory prohibition of communicating with third parties was a close fit with the tort of “public disclosure of private facts” and thus found Hunstein had Article III standing.

Because the court found Hunstein had standing, it went on to analyze whether the district court was correct in its decision that the transmission of data was not a communication “in connection with the collection of any debt.” The district court found it was not because for a communication to be “in connection with the collection of any debt,” the communication must “make[ ] an express or implied demand for payment.” Since the information Preferred sent to Compumail did not demand payment of a debt, the district court held that it was not “in connection with the collection of any debt.” The Court of Appeals disagreed that such a communication must “make[ ] an express or implied demand for payment” because the cases that came to such a conclusion were based upon violations of Section 1692e, not 1692b(c). Section 1692e concerns communications to consumers, while Section 1692b(c) concerns communications with third parties. Because communications with third parties would never demand payment from the debtor, the court concluded that the term “in connection with the collection of a debt” does not have the same meaning in both sections.

            Instead, the court held the term should be given its plain meaning, looking at the meaning of “the phrase ‘in connection with’ and its cognate word, ‘connection.’”

Dictionaries have adopted broad definitions of both. Webster's Third defines “connection” to mean “relationship or association.” Connection, Webster's Third International Dictionary at 481 (1961), and the Oxford Dictionary of English defines the key phrase “in connection with” to mean “with reference to [or] concerning,” In Connection With, Oxford Dictionary of English at 369 (2010). Usage authorities further explain that the phrase “in connection with” is “invariably a vague, loose connective.” Bryan A. Garner, Garner's Dictionary of Legal Usage 440 (3d ed. 2011).

            Based on this broad definition, the court stated that “[i]t seems inescapable that Preferred’s communication to Compumail at least ‘concerned,’ was ‘with reference to,’ and bore a ‘relationship [or] association to its collection of Hunstein’s debt” and “[held] that Hunstein has alleged a communication ‘in connection with the collection of any debt’ as that phrase is commonly understood.” Thus, the district court’s judgment dismissing the case was reversed by the panel.

            It was the court’s decision regarding a communication in connection with the collection of a debt, rather than its standing decision, that immediately alarmed the default services industry. In fact, the court even recognized the impact of its decision on the industry, stating that

It's not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, but also with other third-party entities. Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost. We recognize, as well, that those costs may not purchase much in the way of “real” consumer privacy, as we doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them. Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable. Needless to say, if Congress thinks that we've misread § 1692c(b)—or even that we've properly read it but that it should be amended—it can say so.

Preferred quickly filed a petition for rehearing en banc, and amicus briefs poured in giving countless examples of mundane practices that could be considered prohibited under the panel’s interpretation of communications in connection with the collection of a debt. It was suggested that the panel’s interpretation could prohibit simply filing and serving a lawsuit to collect a debt, since lawyers and their staff – who work at firms that may qualify as debt collectors – must communicate with court staff, judges, process servers, and others to effectively prosecute a case.

Under Eleventh Circuit rules, a petition for rehearing en banc is also treated as a petition for rehearing before the original panel. In this case, the panel issued a substitute opinion on October 28, 2021, in response to the petition for rehearing en banc. The substitute opinion was issued to address the impact, if any, of the Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021). TransUnion was a case that further addressed whether plaintiffs have Article III standing to assert claims for statutory damages in the absence of actual harm. The substitute opinion concluded that TransUnion did not change its conclusion from the original opinion that Hunstein had Article III standing. However, the panel was not unanimous in this holding. Unlike the original opinion, the substitute opinion included a vigorous dissent from Judge Gerald Tjoflat, who argued that the proper application of TransUnion should mean Hunstein lacks Article III standing.

Before Preferred had an opportunity to file another petition for rehearing en banc following issuance of the substitute opinion, the court acted on its own and ordered the case be heard en banc. Oral arguments were heard in February 2022, and after a seven-month wait, the en banc opinion was issued on September 8, 2022. The en banc court disagreed with the standing analysis and held that the plaintiff did not have Article III standing. Judge Britt Grant, writing for the majority, concluded that there is not a close fit between the FDCPA provision at issue and public disclosure of private facts because that tort requires publicity of highly offensive facts. In this case, there was no publicity, which requires disclosure to the public at large and not just one private party. Judge Grant also found the communications were not of highly offensive information. Because these essential elements of the tort were missing, the plaintiff lacked standing, and the district court was correct in dismissing the case.

While this decision is certainly a victory for Preferred and the industry, because the court held that Hunstein lacked standing, it did not address the merits question of whether the transmission of the data was a communication in connection with the collection of a debt. That question remains open (the original panel decision was vacated), but the Hunstein decision makes it far more difficult for a plaintiff to establish the threshold issue of standing when they allege nothing more than a statutory violation.

However, in an unpublished decision released just one day before Hunstein, a panel that included Judge Grant vacated a district court’s decision dismissing an FDCPA case for lack of standing and allowed a case to proceed on very tenuous claims of actual damages. In Toste v. The Beach Club of Fontainbleau Park Condo. Ass’n, Inc., No. 21-14348, 2022 WL 4091738 (11th Cir. Sept. 7, 2022), a plaintiff sued his homeowner’s association and lawyers representing it under the FDCPA, alleging that it tried to collect incorrect amounts from him and filed a claim of lien on those incorrect amounts (for this, Toste alleged an improper communication with a third party, just like Hunstein). The plaintiff claimed that he suffered damages in time wasted addressing his concerns and emotional distress resulting in lost sleep. The district court dismissed the case for lack of standing, “consider[ing] his emotional damages and the time he spent trying to discover the true amount of his debt to be too insubstantial.” The Court of Appeals reversed, finding in part that the plaintiff’s time spent addressing each debt collection letter amounted to an actual injury. The court noted that “concrete harm from wasted time requires, at the least, more than a few seconds” but that Toste had spent “at least several minutes” on each letter (of which there were two). Although Toste is unpublished, district courts will likely find it persuasive, and it set a very low bar for pleading actual damages. Plaintiff’s lawyers who are aware of the decision may very well tailor their pleadings based on this decision so that they can get past a motion to dismiss for lack of standing.

Thus, while Hunstein ruled out many FDCPA claims based solely on a statutory violation, Toste has provided a roadmap for plaintiff’s lawyers to attempt to plead actual damages based on nothing more than alleging that their client made a phone call or spent a few minutes reading a letter they thought was confusing or incorrect.

Copyright @2022

Fall 2022 USFN Report

by William N. Foshag, Esq.

Gray & Associates, LLP

USFN Member (WI)

In April 2021, the 11th Circuit held that a debt collector violated the FDCPA by sending a consumer’s information to a third-party vendor generating debt collection letters in Hunstein v. Preferred Collection and Management Services, Inc. No. 19-14434, 2021 WL 1556069, at *2 (11th Cir. Apr. 21, 2021).  Hunstein gave expansive interpretation to 15 U.S.C. § 1692c(b)’s phrase, “‘in connection with the collection of any debt,” and rejected the argument that this phrase necessarily involves a demand for payment. The court acknowledged this rigid interpretation may have widespread industry implications and suggested it would be up to Congress to amend § 1692c(b), as needed.

The court reaffirmed its decision in October 2021[i] related to Hunstein’s standing to sue, then vacated that opinion in November 2021 and agreed to reconsider the matter en banc (2021 WL 5353154 (11th Cir. Nov. 17, 2021)). Oral arguments were recently held in February 2022, again related to standing and the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021).[ii]

In the meantime, Hunstein has created ongoing confusion in the collection industry and in courts across the country, including Wisconsin. In a proposed class action suit with a nearly identical fact pattern to Hunstein, a Wisconsin consumer alleged a debt collector violated 1692c(b) for sharing information with a third party that mails collection letters in Nabozny v. Optio Sols., 21-cv-297-jdp (W.D. Wis. Feb. 8, 2022).[iii]  The Wisconsin District Court was not persuaded by Hunstein however, citing the case’s more recent procedural history, and was similarly not persuaded by decisions around the country that have followed the reasoning of Hunstein. 

Instead, the court followed decisions holding “disclosure to a third-party provider of clerical services differs from disclosure to the public in kind, not merely in degree.” Nabozny, at 6, citing Shields v. Prof'l Bureau of Collections of Md., Inc., No. 2:20-cv-02205-HLT-GEB, 2021 WL 4806383, at *8 (D. Kan. Oct. 14, 2021); Sputz v. Alltran Fin., LP, No. 21-CV-4663 (CS), 2021 WL 5772033, at *10 (S.D.N.Y. Dec. 5, 2021). 

The court also found persuasive that the CFPB has not prevented debt collectors from using vendors to send collection letters, despite the recent issuance of similar rules related to communications (85 Fed. Reg. 76, 735). Concluding,  “disclosure to such vendors is not the sort of harm the FDCPA was meant to prevent,” the Court found Nabozny did not suffer any concrete injury, lacked standing to sue, and dismissed the case. Nabozny, at 8. 

@Copyright 2022

USFN Report - Spring 2022

USFN Associate Member iMailTracking has been closely following Hunstein and the practical effects of its litigation. USFN asked Holly Baya of iMailTracking a few questions regarding Hunstein, its subsequent copycat cases, and its impact on their business and the industry.

Q: What was your initial reaction to the Hunstein case?

A: In late April 2021, I was gearing up to attend my first NCBA Conference, excited to expand my knowledge about collections, then Hunstein came along and ruined my day. We were about a year removed from the COVID-related impacts on mail, and while we felt that pain along with most of our clients, we were adjusting. This was another hit that no one needed.

Q: How did the Hunstein case initially affect your business?

A: We saw clients in the 11^th Circuit reluctantly bringing mail back in house with others outside the circuit following suit in an abundance of caution. We looked to Obduskey, and other decisions like it, taking the position that non-judicial foreclosures do not fall under the FDCPA. Further, that judicial foreclosures do not fall under the FDCPA if the law firm is not seeking a deficiency judgment. Additionally, it was our stance that any other mail that is not a “communication in connection with the attempt to collect a debt,” such as bankruptcy and litigation mail, most association mail, and even debt collector mail that does NOT ask the debtor to pay, could still be processed through a mail vendor.

That said, we are in the business of mail, not legal advice, and every firm had to take a hard look at the way they did business and determine what was best for them. We respected those decisions and learned from every conversation we had on the matter.

Q: How have you adapted?

A: We have taken the intervening time to try to come up with creative solutions to counter the arguments that were the basis of the case. This was especially important considering the surge of copycat cases that began popping up across the country, though most, thankfully, failed to gain traction. These included considerations of modified contractual language and agency arrangements. There is no one-size-fits-all solution, at least not to date, but we remain open to all ideas.

Q: How have you seen the mortgage default servicing industry react and adapt?

A: As we dug in, it became apparent this case had implications far beyond mail vendors. Any firm communication to a third-party service provider could potentially be considered an FDCPA violation. We were heartened when the appeal was filed, and more so seeing all the amicus briefs filed in support by heavy hitters across varied industries, including banking and healthcare.

Q: As you mentioned there have been several copycat cases with varied outcomes and rulings (we feature two examples in this edition). What are your solutions and ideas for moving forward?

A: The recent case out of the Eastern District of Pennsylvania highlights the need for the modernization of the FDCPA, to account for the advances in technology and best practices that have been established since its inception that serve to benefit the law firms, servicers, and ultimately the consumer. We realize it could be years before the Supreme Court would take this up, if ever, and the same goes for a congressional amendment. If the language is left open to interpretation, as it is, the ripples of the Hunstein case could be felt long after it has reached its specific resolution.

@Copyright 2022

USFN Report - Spring 2022