Jeffrey L. Gammon, Individually and on Behalf of All Others Similarly Situated v. Gc Services Limited Partnership

27 F.3d 1254, 1994 U.S. App. LEXIS 16013, 1994 WL 278580

• Court: Court of Appeals for the Seventh Circuit
• Decided: June 24, 1994
• Docket: 93-3403
• Status: Published

Opinions

KANNE, Circuit Judge.

“We provided the systems used by a major branch of the federal government and various state governments to collect delinquent taxes.... You must surely know the problems you will face later if you do not pay.” Is the implication for the debtor who receives this communication from a collection agency that the agency worked with the government to collect delinquent taxes and that the debt- or could be in trouble with the government if he doesn’t pay his delinquent bill?

In this case GC Services Limited Partnership, a debt collection agency, mailed Jeffrey Gammon a form collection letter containing the following language:

Your account with American Express has been referred to us for immediate attention.

You should know that we are an experienced collection agency. We provided the systems used by a major branch of the federal government and various state governments to collect delinquent taxes.

We have collected millions of accounts from people in similar circumstances. Now we intend to collect your debt. We know what we are doing, and we are very efficient. We have handled every kind of account — and dealt with every kind of excuse.

You must surely know the problems you will face later if you do not pay. Send us your payment in full in the enclosed envelope, which is directed to the post office box we maintain for American Express accounts.

(emphasis added).

The federal law which deals with collection practices by debt collectors, the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692e, provides in pertinent part:

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The false representation or implication that the debt collector is vouched for ... or affiliated with the United States or any State....

Gammon filed this class action under section 1692e, seeking injunctive relief and damages against GC Services. In his complaint, Gammon alleged that the statement in GC Services’ letter professing that it provided collection systems to federal and state governments “connotes that GC is vouched for or is affiliated with or is acting on behalf of both federal and state government in connection with collection of this debt.”

Dismissal of Claim for Lack of Subject Matter Jurisdiction

Based on an initial review of Gammon’s complaint, the district court dismissed the case sua sponte for lack of subject matter jurisdiction. The court opined that it was “an impermissible strain on the English language to assert that, by making such a con-cededly truthful statement, GC has somehow represented or implied that it is ‘vouched for, bonded by, or affiliated with the United States or any State.’ ”

We review de novo dismissals for lack of subject matter jurisdiction. Joyce v. Joyce, 975 F.2d 379, 382 (7th Cir.1992).

The Supreme Court has repeatedly held that “federal courts are without power to entertain claims otherwise within their jurisdiction if they are ‘so attenuated and unsubstantial as to be absolutely devoid of merit.’” Hagans v. Lavine, 415 U.S. 528, 536, 94 S.Ct. 1372, 1378-79, 39 L.Ed.2d 577 (1974) (citations omitted). This “substantiality doctrine” dictates that before a district court may entertain a claim for recovery under the Constitution or federal statutes, it must conduct an initial review of the face of the complaint to determine whether the merits are sufficiently substantial to engage the subject matter jurisdiction of the court. See, e.g., Ricketts v. Midwest Nat’l Bank, 874 F.2d 1177, 1180-82 (7th Cir.1989). If the court determines that the claim is “wholly insubstantial and frivolous,” the court does not have the power to decide the case and the complaint must be dismissed for lack of subject matter jurisdiction. Id. at 1182 (citing Bell v. Hood, 327 U.S. 678, 681-82, 66 S.Ct. 773, 774-76, 90 L.Ed. 939 (1946)). See also Joyce v. Joyce, 975 F.2d 379, 383 n. 3 (7th Cir.1992) (citing cases).

Although similar to the standard for dismissal for failure to state a claim upon which relief can be granted under Fed. R.Civ.P. 12(b)(6), the standard for dismissal for want of subject matter jurisdiction is considerably more rigorous. In Ricketts, we noted that the Supreme Court has used “exacting adjectives to define the degree of insubstantiality required before a case is to be dismissed.... ” 874 F.2d at 1182. A claim must be “wholly insubstantial,” or “obviously frivolous,” “plainly unsubstantial,” or “no longer open to discussion,” to merit dismissal under the substantiality doctrine. See Hagans, 415 U.S. at 537, 94 S.Ct. at 1379. However, we have previously held that if remanding a case dismissed for want of subject matter jurisdiction would be futile because appellant has also failed to state a claim upon which relief can be granted, we will affirm the district court, even though the dismissal for lack of subject matter jurisdiction was improper. Shockley v. Jones, 823 F.2d 1068, 1073 (7th Cir.1987); White v. Elrod, 816 F.2d 1172, 1176 (7th Cir.1987), cert. denied, 484 U.S. 924, 108 S.Ct. 286, 98 L.Ed.2d 246 (1987). Because we hold that Gammon’s complaint successfully states a claim upon which relief can be granted, it logically follows that we believe the claim is not so insubstantial or frivolous on its face as to warrant dismissal for lack of subject matter jurisdiction. Therefore, we reverse.

Debt Collection and Consumer Sophistication

The district court viewed Gammon’s claim “through the lens of the ‘least sophisticated debtor’ or ‘least sophisticated consumer’” standard. In Clomon v. Jackson, 988 F.2d 1314 (2d Cir.1993), the Second Circuit explained that the widely-adopted least sophisticated consumer standard was grounded in an effort to effectuate the goal of consumer protection laws by protecting “consumers of below-average sophistication or intelligence” who are “especially vulnerable to fraudulent schemes.” Id. at 1319. Despite the absolute term “least,” the Second Circuit maintained that “in crafting a norm that protects the naive and the credulous the courts have carefully preserved the concept of reasonableness” in the least sophisticated consumer standard. Id. It pointed out that courts have held that “even the ‘least sophisticated consumer’ can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.” Id. at 1319. Thus, it concluded, the standard effectively “protects debt collectors against liability for bizarre or idiosyncratic interpretations of collection notices.” Id. at 1320.

We agree with much of the analysis set forth by the Second Circuit in Clomon; however, we believe that a modification of the least sophisticated consumer standard as articulated in eases such as Clomon¹ would relieve the incongruity between what the standard would entail if read literally, and the way courts have interpreted the standard.

It strikes us virtually impossible to analyze a debt collection letter based on the reasonable interpretations of the least sophisticated consumer. Literally, the least sophisticated consumer is not merely “below average,” he is the very last rung on the sophistication ladder. Stated another way, he is the single most unsophisticated consumer who exists. Even assuming that he would be willing to do so, such a consumer would likely not be able to read a collection notice with care (or at all), let alone interpret it in a reasonable fashion. Courts which use the “least sophisticated consumer” test, however, routinely blend in the element of reasonableness. See Clomon, 988 F.2d at 1319.

In maintaining the principles behind the enactment of the FDCPA, we believe a simpler and less confusing formulation of a standard designed to protect those consumers of below-average sophistication or intelligence should be adopted. Thus, we will use the term, “unsophisticated,” instead of the phrase, “least sophisticated,” to describe the hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading. We reiterate that an unsophisticated consumer standard protects the consumer who is uninformed, naive, or trusting, yet it admits an objective element of reasonableness. The reasonableness element in turn shields complying debt collectors from liability for unrealistic or peculiar interpretations of collection letters.

Application of Standard

Applying the standard to this ease, we conclude that an unsophisticated consumer reasonably could interpret the statement, “We provided the systems used by a major branch of the federal government and various state governments to collect delinquent taxes,” to imply that those governmental bodies vouch for or are affiliated with GC Services. Thus, Gammon has sufficiently stated a claim upon which relief can be granted. By prohibiting representations by debt collectors that they are “affiliated with” or “vouched for” by a governmental entity, the FDCPA forbids a range of implications wider than merely the direct representation that the debt collector is or is a part of state or federal government. “Affiliate” is defined as “signifying] a condition of being united; being in close connection, allied, associated, or attached as a member or branch.” Black’s Law Dictionary 58 (6th ed. 1990). To “vouch” is defined as “[t]o give personal assurance or serve as a guarantee.” Id. at 1577.

The language in the collection letter appears to be cleverly drafted in order to insinuate what obviously cannot be stated directly. It is difficult to imagine what end GC Services intended to accomplish with its statement other than the intimidation of unsophisticated consumers with the power of having the tax collecting units of the federal and state governments in its corner, or at least at its disposal. It would seem that GC Services had no reason to mention specifically its state and federal government clients in the letter except to leave the impression that it is closely involved with these governmental entities, and can use the “systems” of the IRS and state tax authorities to collect delinquent debts. And although the subjective intent of the debt collector is not dispositive of a claim under section 1692e(l) of the FDCPA, the intended effect of the statement reinforces our view as to the actual effect it is likely to have upon the unsophisticated debtor.

GC Services cites Smith v. Transworld Systems, Inc., 953 F.2d 1025 (6th Cir.1992), in support of its position that its statement would not mislead an unsophisticated consumer into thinking that GC Services is vouched for by or affiliated with the government. In Smith, the Sixth Circuit rejected the debtor’s argument that the statement, “Transworld Systems Inc. is a licensed collection agency,” constituted an attempt by the debt collection agency to represent in its collection letter that it was affiliated with the State of Ohio and therefore enjoyed governmental approval. The court reasoned that although “a very narrow reading of the statute may support Smith’s position,” the statement in question fell outside the scope of section 1692e(l), because the least sophisticated consumer would not have been misled by Transworld’s representation.

GC Services’ reliance on this case is unavailing. Unlike Transworld, GC Services did not simply represent that it was a “licensed” collection company without any mention of the state or federal governments. Instead, it explicitly linked itself with the “federal government” and “various state governments.” Moreover, whereas the unsophisticated consumer is likely to understand that being licensed by the State does not mean being vouched for by the State (as in the case of driver’s licenses, for example), the unsophisticated consumer would likely not be familiar with the “systems” used for private debt collection and the relationship between those systems and governmental power.

GC Services appears to have implied that its development of governmental “systems” for the collection of delinquent taxes would enable it to cause “problems” for the delinquent debtor. An unsophisticated consumer could reasonably believe that his future “problems” would be with “a major branch of the federal government” because of GC Services’ development of the government’s “systems.” GC Services’ letter, by which it sought to collect a delinquent account of Jeffrey Gammon may have violated the provisions of section 1692e by falsely implying that it had an affiliation with the United States or various states.

CONCLUSION

Because Gammon has stated a claim upon which relief can be granted, we Vacate the district court’s dismissal for lack of subject matter jurisdiction. The case is reinstated and we Remand for further proceedings.

1 . See, e.g., Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir.1993); Smith v. Transworld Sys., Inc., 953 F.2d 1025, 1028 (6th Cir.1992); Graziano v. Harrison, 950 F.2d 107, 111 & n. 5 (3d Cir.1991) ("least sophisticated debtor”); Swanson v. Southern Oregon Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir.1988) (same); Jeter v. Credit Bureau, 760 F.2d 1168, 1175 (11th Cir.1985).