The following is a case update written by Everett L. Green, an attorney with the U.S. Department of Justice, Office of the United States Trustee, analyzing a recent decision of interest:
In a case of first impression, a panel of the Eleventh Circuit in Hunstein v. Preferred Collection and Management Services, Inc., 2021 WL 1556069 (11th Cir. 2021) held that the plaintiff had standing to challenge a debt collector’s transmission of plaintiff’s personal information to the debt collector’s mailing service and that the practice may constitute a violation of the Fair Debt Collections Act.
To view the full opinion, click here.
To assist its effort to collect a medical debt from plaintiff, appellant Preferred Collections & Management Services (“Preferred”) transmitted plaintiff’s personal information, including the name of his minor child, to a commercial mail service. The vendor used that information to send plaintiff a collection letter.
Plaintiff alleged that the disclosure of his personal information to the mail service, among other things, violated Section 1692c(b) the Fair Debt Collections Practice Act (“FDCPA”). That section, with certain exceptions, prohibits debt collectors from communicating consumers’ personal information to third parties “in connection with the collection of any debt.”
The district court dismissed plaintiff’s complaint, holding that Preferred’s communications with its own vendor was not an attempt to collect a debt. The district court reasoned that the purpose of the communication was to generate a collection letter. Preferred did not demand or request payment from anyone.
On appeal, the Eleventh Circuit first analyzed whether plaintiff had standing ― specifically, whether the violation of a procedural right granted by statute constituted an injury in fact. Plaintiff’s complaint cited the harm arising from Preferred’s disclosure of plaintiff’s sensitive medical information to an unauthorized third party. This harm, the appellate court reasoned, is tantamount to an invasion of individual privacy, one of the harms against which the FDCPA is directed. Plaintiff had standing.
Turning to the merits, the only question at issue was whether Preferred’s communication with its vendor was “in connection with the collection of any debt” in violation of Section 1692c(b). Plaintiff argued for a plain meaning interpretation of the phrase.
Citing the absence of precedent at the appellate level, Preferred urged the court to adopt a factor-based analysis, which would require the court to focus on the relationship between Preferred and its vendor. That relationship, according to Preferred, was an agent-principal relationship and communications between the two were not intended to be prohibited by the FDCPA.
Recognizing that dictionaries define the phrase “in connection with” broadly, the court held that “[i]t seems inescapable” that Preferred’s communication of plaintiff’s status as a debtor, the precise amount of his debt, the entity to which the debt was owed, and that the debt concerned his son’s medical treatment “was with reference to and bore a relationship or association to its collection of plaintiff’s debt.”
The appellate court declined to adopt the district court and Preferred’s interpretation of “in connection with the collection of any debt” to entail a demand for payment. First, that interpretation would render portions of Section 1692c(b) superfluous and meaningless. And second, that interpretation relied on the interpretations and caselaw applicable to other sections of the FDCPA, whose provisions and purposes are different from Section 1692c(b).
The Eleventh Circuit recognized the adverse impact of its ruling on the debt collection industry:
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 . . . 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 [mail vendors] 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.
Given the potential disruption to the debt collection industry, some commentators predict that Preferred will seek en banc review from the entire Eleventh Circuit, which will allow industry groups to submit amicus briefs.
California practitioners should study the Eleventh Circuit’s opinion and alert their clients to potential exposure. California’s version of the FDCPA, the Rosenthal Act, incorporates by reference and requires compliance with the FDCPA. See Cal. Civ. Code § 1788.17. Arguably under the Rosenthal Act, any conduct by a debtor collector which violates the FDCPA necessarily violates California’s version as well. See e.g., Robinson v. Managed Accounts Receivables Corp., 654 F. Supp. 1051, 1060 (C.D. Cal. 2009) (citing cases).
A California consumer’s complaint that a debt collector disclosed that consumer’s personal information to a mailing service has a strong probability of surviving a motion to dismiss.
These materials were written by Everett L. Green, an attorney with the U.S. Department of Justice, Office of the United States Trustee, who is a member of the ad hoc group and a member of the Business Law Section’s Executive Committee. Editorial contributions were made by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal., Ret.), also a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.