In a win for the collection industry, in Bentrud v. Bowman, Heintz, Boscia & Vician, P.C., 794 F. 3d 871 (7th Cir. 2015), the Seventh Circuit again declined to apply the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. ("FDCPA"), to collection-related court proceedings. This offers debt collectors some relief from the onslaught of alleged FDCPA violations based on state court collection lawsuits.
In its July 27, 2015, ruling, the Court upheld the district court's grant of summary judgment to the defendant-law firm. The law firm had filed for summary judgment in the collection lawsuit on the debtor's $10,000+ credit card debt. The debtor responded by requesting arbitration under the terms of the credit card agreement. The state court gave the debtor 30 days in which to initiate the arbitration, but he failed to meet that deadline. After the deadline had passed, the law firm filed another motion for summary judgment. The debtor requested more time to initiate arbitration, which the state court granted, and the debtor then successfully initiated the arbitration. The case proceeded in arbitration. At the same time, the debtor filed a lawsuit in federal court alleging that the law firm had violated § 1692f of the FDCPA by filing the summary judgment motion after he had requested arbitration. The debtor claimed that, "once invoked, the arbitration provision forever barred [the law firm] from resuming litigation in court," even though the debtor had missed the court-imposed deadline to initiate arbitration.
The Seventh Circuit explained that the law firm's act of filing the summary judgment motion did not violate § 1692f because "The FDCPA is not an enforcement mechanism for matters governed elsewhere by state and federal law." This is what the debtor was trying to do in filing the FDCPA lawsuit over the arbitration demand made in the state court proceedings. The Seventh Circuit's reasoning came from its ruling in Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 480 F.3d 470 (7th Cir. 2007), an opinion that the collection industry has attempted to invoke in Seventh Circuit FDCPA cases for the past eight years. The Seventh Circuit has finally resurrected Beler and applied it in Bentrud to limit application of the FDCPA in state court collection proceedings.
The Court compared the Bentrud facts to Beler, where the debtor alleged that the collection law firm had violated the FDCPA by failing in a state court collection lawsuit to comply with state and federal laws requiring exemption of Social Security benefits from execution or attachment. There, "the appellant theorized that it was unfair or unconscionable for a debt collector to violate rules of positive law." Beler, 480 F.3d at 473. The Seventh Circuit "denied the claim, noting that both the federal and state laws implicated provided remedies for violations" and affirmed a grant of summary judgment to the collection law firm. Id. at 474.
The Court clarified it reasoning in Beler by explaining that under § 1692f(6) "nonjudicial action" is prohibited, which implies "that state judicial proceedings are outside the scope of § 1692f." Beler, 480 F.3d at 475. The Bentrud Court elaborated by explaining that even under the broader reach of § 1692f in general, which prohibits "unfair and unconscionable" collection acts, the state court rules governed the situation by providing remedies for the alleged violation and, in fact, the state court had entered two orders setting dates by which the debtor could initiate arbitration. Thus, in both Beler and Bentrud, the debtor could not bring an FDCPA claim based on the events that took place in state court.
At least one district court has cited to Bentrud in granting a motion to dismiss FDCPA claims based on state court collection lawsuit events. See Lena v. CACH, LLC, 2015 U.S. Dist. LEXIS 103007 (N.D.Ill. August 6, 2015). We hope to see the Beler-Bentrud legacy continue.
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