Who Is Exempt From Liability For Deceptive Debt Collection Claims?
On December 11, 2015, the U.S. Supreme Court granted certiorari to hear a dispute concerning allegations of deceptive debt collection by lawyers.
The case, Sheriff v. Gillie, was brought under the Fair Debt Collection Practices Act (“FDCPA”) by debtors against private attorneys and law firms that the Ohio Attorney General had appointed to act as special counsel to collect debts owed to the State of Ohio. The FDCPA was enacted by Congress in 1977 to prevent abusive debt collection practices. Plaintiffs allege that Defendants violated the FDCPA by using the Attorney General’s letterhead in sending debt-collection notices because use of the letterhead was false, deceptive, or misleading to the debtors.
In Ohio, debts that remain uncollected by the State entity to whom the debt is owed will be certified to the Office of the Ohio Attorney General (“OAG”). The Attorney General is responsible for their collection. However, Ohio law authorizes the Attorney General to appoint “special counsel” to collect these state debts on the Attorney General’s behalf, and certain attorneys were so appointed.
Following commencement of the lawsuit, the Attorney General moved to intervene to shield these attorneys from liability. The district court granted the motion to intervene, and then granted summary judgment in favor of the Defendants. Plaintiffs appealed and the Sixth Circuit Court of Appeals vacated the district court’s decision.
Exemption From Liability Under The FDCPA
The Sixth Circuit’s 2–1 ruling turned on its interpretation of two key terms under the FDCPA: “debt collector” and “officer”. The FDCPA broadly defines “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” However, the FDCPA exempts from liability “any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties.”
For the definition of “officer,” the Court turned to the Definition Act which provides that the term “officer” “includes any person authorized by law to perform the duties of the office.” The Court found that Defendants were not “authorized by law” to collect debts, but instead were authorized by their contracts with the Attorney General. Although Defendants are “special counsel” appointed by the Attorney General, they could not qualify as “officers” unless they could perform “all duties of the Attorney General’s Office.”
Thus, the Sixth Circuit held that the Defendants were not “officers or employees” to be exempted from the statute, and that a jury could reasonably find that the use of the Ohio Attorney General’s letterhead by the Defendants to result in deceptive, misleading and false representation in violation of the FDCPA. Accordingly, the majority reversed the district court’s decision, holding that these “special counsel” defendants were “debt collectors” under the FDCPA and were not exempted as “officers,” even though they were appointed by the Attorney General to collect state debts on his behalf.
The “Least Sophisticated Consumer” Standard
In determining whether using the Attorney General’s letterhead by special counsel in sending debt-collection notices constituted false, deceptive, or misleading means, the Court applied the “least sophisticated consumer” standard, which is designed to protect consumers of below average sophistication or intelligence, or those who are uninformed or naive, the objective component of the test supposedly protects debt collectors against liability for bizarre or idiosyncratic interpretation of collection notices. Under the “least sophisticated consumer” standard, the Court must decide whether the least sophisticated consumer would be misled by the use of OAG letterhead, or, if there is any genuine dispute of fact as to whether these letters were misleading.
While the Court found the notices sent by the special counsel included clear indications that they were sent by an attorney who was acting as a debt collector and that the attorney’s role as a debt collector was separate and apart from the OAG, the Court nevertheless concluded that the least sophisticated consumer might be misled by it.
The “Unsophisticated Consumer” Standard
Joined by Ohio’s Attorney General Michael DeWine, the Petitioners filed a petition for writ of certiorari. Petitioners pointed out that there is a circuit split over the general liability test under the FDCPA. While the majority of the circuits employ the “least sophisticated debtor” or “least sophisticated consumer” standard, the other circuits apply the “unsophisticated consumer” test, which assumes the debtor has rudimentary knowledge about the financial world and is capable of making basic logical deductions and inferences.
Respondents contend that there is no conflict among the Courts of Appeals over the controlling standard to determine whether a representation or practice under the FDCPA is misleading. They argue that, since the Sixth Circuit and other circuits have included qualifying factors into the analysis to prevent scenarios for “bizarre and idiosyncratic interpretations” of collection notices, both the “least sophisticated consumer” and the “unsophisticated consumer” standards are essentially the same.
Michigan and seven other states submitted an amicus brief in support of Petitioners. They believe the issue warrants review because the Sixth Circuit’s narrow interpretation of the definition of “officer” encroaches on the States’ flexibility to carry out their core functions, including debt collection.
The Supreme Court’s decision in this case may not only affect the way state governments collect debts. The Court’s decision may, in fact, turn on its view of the relatively low bar for liability set by the “least sophisticated consumer” standard employed by the Sixth Circuit. The consumer financial services industry should be on watch to see whether the Supreme Court resolves the apparent tension in the law between the “least sophisticated consumer” standard and the “unsophisticated consumer” standard.
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*Note: Dorsey attorney Carol Lee co-authored this article with Daniel W. Beebe.