September Webster v. Receivables Performance Manage

• Court: Court of Appeals for the Seventh Circuit
• Decided: February 2, 2022
• Docket: 21-1299
• Status: Published

Opinion

In the

United States Court of Appeals For the Seventh Circuit ____________________ No. 21‐1276 LAURA EWING, Plaintiff‐Appellant, v.

MED‐1 SOLUTIONS, LLC, Defendant‐Appellee. ____________________

Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:18‐cv‐01743‐JRS‐DML — James R. Sweeney II, Judge. ____________________ No. 21‐1299

SEPTEMBER WEBSTER, Plaintiff‐Appellant,

v.

RECEIVABLES PERFORMANCE MANAGEMENT, LLC, Defendant‐Appellee. ____________________

Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:18‐cv‐03940‐TWP‐DML — Tanya Walton Pratt, Chief Judge. ____________________ 2 Nos. 21‐1276 & 21‐1299

ARGUED DECEMBER 14, 2021 — DECIDED FEBRUARY 2, 2022 ____________________

Before SYKES, Chief Judge, and HAMILTON and ST. EVE, Cir‐ cuit Judges. ST. EVE, Circuit Judge. Laura Ewing and September Web‐ ster disputed certain debts they allegedly owed to debt‐col‐ lection companies. Under the Fair Debt Collection Practices Act (“FDCPA”), debt‐collection companies must report such disputes to credit reporting agencies, see 15 U.S.C. § 1692e(8), but the companies here failed to do so. Ewing and Webster sued separately, seeking actual and statutory damages. See id. § 1692k(a). The companies prevailed at summary judgment because the district courts in both cases determined that the companies’ mistakes were bona fide errors. See id. § 1692k(c). On appeal, both Ewing and Webster argue that the debt collectors’ actions were not bona fide errors. We have consol‐ idated their cases for decision. Before we may reach the mer‐ its, though, we must reexamine the requirements for Article III standing, particularly in light of the Supreme Court’s re‐ cent decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), which clarified what counts as an injury‐in‐fact. I. Background A. Ewing v. MED‐1 Solutions, LLC Laura Ewing sought to dispute medical debts by faxing a letter to MED‐1 Solutions, LLC, a debt‐collection company as‐ signed to her case. MED‐1’s receptionist, however, misrouted the fax, forwarding it to the client‐care department rather than the legal department. According to MED‐1’s fax‐distri‐ bution policy, any faxed legal communication regarding Nos. 21‐1276 & 21‐1299 3

contested debts was to be forwarded to the legal department. That day the receptionist received five additional dispute let‐ ters, which she correctly forwarded to the legal department. But as a result of the misrouted fax, Ewing’s dispute was never recorded. Two years later, Ewing obtained her credit report and saw that her debts, as reported by MED‐1, were not indicated as disputed. After MED‐1 eventually recorded the debts as dis‐ puted, her credit score rose. Ewing sued MED‐1 for violations of the FDCPA. She as‐ serted that MED‐1 reported her debts to a credit reporting agency without noting that the debts were disputed. See 15 U.S.C. § 1692e(8). MED‐1 admitted that it had received Ewing’s dispute letter and failed to report the dispute to the credit reporting agency, and it raised the affirmative defense of bona fide error under § 1692k(c). This provision provides safe harbor for debt collectors when they make an uninten‐ tional error, so long as they maintained procedures reasona‐ bly adapted to avoid it. MED‐1 argued that the bona fide error defense applied because its failure to report the dispute arose from an unintentional error and it maintained procedures rea‐ sonably adapted to ensure that it reported faxed disputes. Af‐ ter discovery both parties moved for summary judgment, and the district judge entered summary judgment for MED‐1 based on its affirmative defense. B. Webster v. Receivables Performance Management, LLC September Webster discovered that her credit report re‐ flected a debt that she did not believe she owed. She sought to dispute that debt, so her attorney faxed a dispute notice to the debt collector, Receivables Performance Management, 4 Nos. 21‐1276 & 21‐1299

LLC. The attorney faxed the notice after verifying that Receiv‐ ables’s fax number—one he had used on behalf of other cli‐ ents—remained listed with the Nationwide Multistate Licens‐ ing System & Registry, the entity responsible for licensing debt collectors in Indiana. He received a confirmation that the fax was sent successfully. Unbeknownst to Webster’s attorney, Receivables had de‐ cided several months earlier—without announcement—to stop monitoring its electronic fax inbox. It stopped checking its inbox after removing from its website the fax number Re‐ ceivables had used to communicate about disputes with debt‐ ors and their attorneys. Receivables had general policies for handling known disputes but no procedure in place to check its fax inbox periodically for new disputes or to notify senders that the inbox was unmonitored. As a result, Receivables was unaware that Webster had faxed any dispute. Because Receiv‐ ables did not disconnect or disable the fax number, however, the line sent confirmations upon receipt of faxes, including those sent by Webster’s attorney. Webster sued after she obtained an updated credit report that reflected her DirecTV debt but not her dispute. She al‐ leged that Receivables’s failure to communicate her dispute harmed her credit reputation and credit score. She submitted evidence that her credit score rose once her credit report re‐ flected her other disputed debts. Receivables countered that even if it had violated the FDCPA, its violation was excused by the bona fide error defense. See id. § 1692k(c). Both parties moved for summary judgment and the district judge granted Receivables’s motion based on her assessment that Receiva‐ bles violated the statute, but its error was bona fide. Nos. 21‐1276 & 21‐1299 5

II. Discussion In these appeals, the Debt Collectors1 raise a threshold standing argument. They assert that under TransUnion, which was decided while these appeals were pending, the Consum‐ ers lack standing because any risk of future harm they face is not sufficiently concrete to support a suit for damages. And without a concrete injury, there is no case or controversy for us to adjudicate. Carney v. Adams, 141 S. Ct. 493, 498 (2020). A. Standing We begin with a few words about the law of standing. Ar‐ ticle III standing requires the party invoking federal jurisdic‐ tion to demonstrate that (1) the plaintiff has suffered an in‐ jury‐in‐fact, (2) the injury was caused by the defendant, and (3) the injury is redressable by judicial relief. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). An injury‐in‐fact must be concrete, particularized, and actual or imminent. Id. A con‐ crete injury is essential to standing: “No concrete harm, no standing.” TransUnion, 141 S. Ct. at 2200. To be concrete, an injury must be “‘real,’ and not ‘ab‐ stract,’” but concrete need not mean tangible. Spokeo, Inc. v. Robins, 578 U.S. 330, 340–41 (2016). Traditional tangible harms, such as physical or monetary harm, easily meet the concreteness requirement. TransUnion, 141 S. Ct. at 2204. In‐ tangible harms can be more difficult to assess. Intangible harms are concrete if the plaintiff’s alleged injury bears a “close relationship” to the sort of harms traditionally

1 In nearly all respects, the parties raise materially identical argu‐ ments. So, for convenience, we refer to them collectively as the Debt Col‐ lectors (MED‐1 and Receivables) and Consumers (Ewing and Webster). We will differentiate between the parties when necessary. 6 Nos. 21‐1276 & 21‐1299

recognized by American courts, such as reputational harm. Spokeo, 578 U.S. at 341. The close‐relationship inquiry looks for “a close historical or common‐law analogue” to the al‐ leged injury but does not require an “exact duplicate.” TransUnion, 141 S. Ct. at 2204. When determining if a statuto‐ rily identified, intangible harm has a close‐but‐not‐exact match in American history or at common law, we look to the kind of injury the statute protects, not the degree of harm suf‐ fered. Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 462 (7th Cir. 2020). When considering intangible harm, we start from a place of respect for Congress’s prerogative to create statutory rights and obligations. TransUnion, 141 S. Ct. at 2204. But Congress may not make up injuries and decree them to be actionable. Id. at 2205. Thus, while Congress may elevate de facto injuries that once were thought to be insufficiently injurious to form the basis of a federal lawsuit, such an injury must still cause real‐world harm in order to confer standing. Id. at 2204–05. In this context, then, Congressional authorization to sue is a nec‐ essary, but not sufficient, condition because one still must be “concretely harmed by a defendant’s statutory violation.” Id. at 2205 (emphasis in original). Concrete harms are sometimes difficult to identify, espe‐ cially when the harm is intangible. For example, in Spokeo the Court indicated that, for standing purposes, a material risk of harm could be concrete. Spokeo, 578 U.S. at 341–42. The Court wrote that, although procedural violations do not automati‐ cally create concrete injuries, “[t]his does not mean … that the risk of real harm cannot satisfy the requirement of concrete‐ ness.” Id. at 341 (citing Clapper v. Amnesty Int’l USA, 568 U.S. 398 (2013)). Nos. 21‐1276 & 21‐1299 7

The Court’s recent decision in TransUnion clarified that a risk of future harm is concrete only if the suit is for injunctive relief. See TransUnion, 141 S. Ct. at 2210. The plaintiffs in TransUnion were a class of individuals whose credit reports contained a false notice that the individual was considered a potential threat to national security. Id. at 2201–02. They sued TransUnion under the Fair Credit Reporting Act (“FCRA”), alleging violations of three of the FCRA’s provisions. Id. at 2200–01; see 15 U.S.C. §§ 1681e(b), 1681g(a)(1), (c)(2). The Court divided the plaintiff class into two subgroups based on whether the individual’s credit report (with the mis‐ leading alert) had been disseminated to third parties. TransUnion, 141 S. Ct. at 2208–13. It then examined whether each subgroup had suffered an injury that bore a close rela‐ tionship to a traditionally recognized harm. Id. The Court held that the plaintiffs whose credit reports had been dissem‐ inated had standing because the harm caused by the dissem‐ ination of a credit report with misleading information related closely to the reputational harm associated with defamation. Id. On the other hand, the plaintiffs whose credit reports had not been disseminated lacked standing. Id. at 2209–13. The Court rejected these plaintiffs’ analogy to defamation because they could not prove dissemination, which, in this context, was essential to liability. Id. at 2209. Without any disclosure to a third party, these plaintiffs could not recover on a close‐ relationship‐to‐defamation theory because the mere existence of inaccurate information did not concretely injure them. Id. Nor was the risk of that information being exposed in the future a concrete injury. Id. at 2211. The plaintiffs relied on Spokeo for the proposition that a material risk of harm can 8 Nos. 21‐1276 & 21‐1299

satisfy the concrete‐harm requirement; the Court, however, distinguished Spokeo on the ground that Spokeo cited Clapper, which was a suit for injunctive relief. Id. at 2210. And “a plain‐ tiff’s standing to seek injunctive relief does not necessarily mean that the plaintiff has standing to seek retrospective damages.” Id. Our pre‐TransUnion case law was shaped by Spokeo’s un‐ derstanding of concreteness. In Evans v. Portfolio Recovery As‐ socs., LLC, 889 F.3d 337 (7th Cir. 2018), for instance, we fo‐ cused on the risk of financial harm posed to a consumer by an erroneously low credit score. Id. at 344–46. There, as in the present appeals, a debt collector failed to report several con‐ sumers’ disputes of debts that it sought to collect. Id. at 342– 43. The consumers alleged that this omission violated their procedural rights under 15 U.S.C. § 1692e(8) and created a risk of real harm that was a sufficiently concrete injury under Spokeo. Id. at 344–45. We agreed and held that the consumers had standing because they alleged a risk of concrete financial harm caused by an inaccurately low credit score. Evans, 889 F.3d at 346. TransUnion alters our understanding of Spokeo and super‐ sedes Evans to the extent Evans says that a mere risk of harm is a sufficiently concrete injury to support a suit for damages. TransUnion makes clear that a risk of future harm, without more, is insufficiently concrete to permit standing to sue for damages in federal court. See TransUnion, 141 S. Ct. at 2212– 13; cf. Lupia v. Medicredit, Inc., 8 F.4th 1184, 1193 n.3 (10th Cir. Nos. 21‐1276 & 21‐1299 9

2021); Ward v. Nat’l Patient Account Servs. Sols., Inc., 9 F.4th 357, 361 (6th Cir. 2021).2 In the wake of TransUnion, then, we ask whether the Con‐ sumers suffered a concrete injury when the Debt Collectors communicated false information (i.e., reports of debts not be‐ ing disputed) about them to a credit‐reporting agency. The Consumers maintain that their injury is concrete because the dissemination of false information to a credit reporting agency bears a close relationship to reputational harms long recognized in American courts and at common law, such as defamation. The Debt Collectors argue that the Consumers could not have suffered a concrete injury because there is no evidence that TransUnion sent the Consumers’ credit reports to poten‐ tial creditors. According to the Debt Collectors, this means the Consumers are in the same position as the losing subclass in TransUnion. See TransUnion, 141 S. Ct. at 2209. But the argu‐ ment is a red herring. If the Consumers’ harm is analogous to defamation, then they must demonstrate that the Debt Collec‐ tors disseminated false information about them to a third party. The Consumers do not have to make a further showing that the third party also shared that false information. These appeals also differ from TransUnion in a significant regard—different statutes are implicated and the subjects whom the applicable statutes aim to regulate are different. TransUnion applied the FCRA, which seeks to regulate the

2 Nevertheless, the outcome of Evans would be the same under this decision for the injury the plaintiffs in Evans suffered is indistinguishable from the injury the Consumers suffered. 10 Nos. 21‐1276 & 21‐1299

procedures used by credit reporting agencies. 15 U.S.C. § 1681(b). The FDCPA, by contrast, aims to prevent abuses com‐ mitted by debt collectors. See id. § 1692(e). Under the FDCPA, a consumer must show that a debt collector reported false in‐ formation, such as by failing to communicate the disputed na‐ ture of a debt. The Debt Collectors’ comparison between the Consumers here and the losing subclass in TransUnion would have us hold that the Consumers must show fourth‐party publication, which TransUnion does not require. Instead, TransUnion requires us to ask whether the injury protected by § 1692e(8) bears a close relationship to a harm traditionally recognized in American history or at common law. See TransUnion, 141 S. Ct. at 2208–09. The statutory vio‐ lation in these cases is clear—the Debt Collectors failed to re‐ port a dispute that they should have known about. And Con‐ gress specifically authorized the Consumers’ claims for re‐ dress. 15 U.S.C. § 1692e(8). Congress created that claim, along with other enumerated claims, to counter abusive debt‐collec‐ tion practices and to ensure that upstanding debt collectors are not at a competitive disadvantage. Id. § 1692(e). But as we noted earlier, a statutory violation alone does not make an in‐ jury concrete. So, we must look for a common law analogue to ensure a concrete harm. See TransUnion, 141 S. Ct. at 2204– 05. We believe the harm Congress sought to remedy through § 1692e(8) is analogous to the harm caused by defamation, which has long common law roots. Following the Court’s ex‐ ample in TransUnion, we consider the reputational harm that occurs when one publishes a false and defamatory communi‐ cation about another. See TransUnion, 141 S. Ct. at 2209–10; Rest. (Second) of Torts § 558. Nos. 21‐1276 & 21‐1299 11

In assessing the Consumers’ injury, we focus on the ques‐ tion of publication because an unpublished statement, even if false and defamatory, is not injurious. TransUnion, 141 S. Ct. at 2209–10. Specifically, we pause to consider whether the Debt Collectors’ communications to TransUnion count as publication in light of some dicta in TransUnion. In footnote six, the Court acknowledged that the subclass of plaintiffs whose credit reports were not disseminated raised a forfeited argument that TransUnion had “published” their personal and financial information to its own employees and to its printing vendors. Id. at 2210 n.6. The Court observed that American courts had not “necessarily recognized disclosures to printing vendors as actionable publications” and implied that, under such circumstances, a plaintiff would need to pre‐ sent evidence that the defendant had “brought an idea to the perception of another.” Id. The Consumers have shown publication here through their evidence of third‐party dissemination. In this regard, they resemble the prevailing subclass in TransUnion, who demonstrated that misleading information about them had been “disseminated to third parties” and so “suffered a con‐ crete injury in fact under Article III.” Id. at 2209. The Court in TransUnion did not require those plaintiffs to come forward with additional evidence of publication because dissemina‐ tion was clear. See id. at 2209. Here too the Debt Collectors disseminated false reports about the Consumers to TransUn‐ ion. To require more of the Consumers would permit the dicta in footnote six to erode TransUnion’s holding that evidence of dissemination to a third party is sufficient to show publica‐ tion. 12 Nos. 21‐1276 & 21‐1299

Because the Consumers demonstrated third‐party dissem‐ ination, their appeals do not implicate the Court’s reference to a general requirement that defamatory content is read, not merely processed. See id. 2210 n.6. In footnote six, the Court pointed to a line of cases that dealt with liability for dictating defamatory matter to a stenographer. Id. (citing Ostrowe v. Lee, 175 N.E. 505 (N.Y. 1931)). These cases were concerned with whether the stenographer was simply mechanically transmit‐ ting the words or whether she perceived or understood the defamatory significance of what was dictated. See Ostrowe, 175 N.E. at 505 (publication occurs when defamatory content is “read and understood”). Reading was a proxy for under‐ standing rather than just mechanically transmitting infor‐ mation, but was not always required. See Rest. (Second) of Torts § 577 cmt. h; see also Rickbeil v. Grafton Deaconess Hosp., 23 N.W.2d 247, 252–56 (N.D. 1946) (collecting cases). The es‐ sential point, one that has always been necessary to prove publication, is this: the third party must understand the de‐ famatory nature of the communication. See Rest. (Second) of Torts § 577 cmt. c. To determine whether there has been a publication here, then, we ask whether TransUnion understood the defamatory significance of the Debt Collectors’ reports. We believe that it did. TransUnion included the debts in the Consumers’ credit reports; TransUnion would have included the disputes too had the Debt Collectors communicated them. And the Con‐ sumers submitted evidence that TransUnion’s assessment of their creditworthiness took into account whether a debt was disputed or not. That is enough to show that TransUnion un‐ derstood the significance of the reports. Nos. 21‐1276 & 21‐1299 13

The Consumers suffered an intangible, reputational injury that is sufficiently concrete for purposes of Article III stand‐ ing. Specifically, they have shown that their injury is related closely to the harm caused by defamation. Reputational harm of this sort is a real‐world injury; being portrayed as a dead‐ beat who does not pay her debts has real‐world conse‐ quences. B. The Bona Fide Error Defense We proceed to the merits, and specifically the conclusions of both district courts applying the bona fide error defense. The district judge in Ewing’s case concluded that, regardless of whether MED‐1’s actions violated the FDCPA, its mistake was a bona fide error that shielded it from liability. See 15 U.S.C. § 1692k(c). The judge in Webster’s case determined that Receivables’s actions violated the FDCPA but excused that violation as a bona fide error. See id. We review those de‐ cisions de novo with all facts and reasonable inferences drawn in favor of the non‐prevailing parties, here the Con‐ sumers. Hess v. Bd. of Trs. of S. Ill. Univ., 839 F.3d 668, 673 (7th Cir. 2016) (citing Fed. R. Civ. P. 56(a)). Under the bona‐fide‐error defense, a debt collector is not liable for violating the FDCPA if it shows by a preponderance of the evidence that (1) the violation was not intentional, (2) the violation resulted from a bona fide error, and (3) it main‐ tained procedures reasonably adapted to avoid the error. Abdollahzadeh v. Mandarich L. Grp., LLP, 922 F.3d 810, 815 (7th Cir. 2019) (citing Kort v. Diversified Collection Servs., Inc., 394 F.3d 530, 537 (7th Cir. 2005)). The Consumers essentially argue that the Debt Collectors failed to satisfy the third element—that they maintained 14 Nos. 21‐1276 & 21‐1299

reasonable procedures to avoid the error.3 The Supreme Court has defined “reasonably adapted” procedures “to avoid any such error” to mean “mechanical or other such ‘regular or‐ derly’ steps to avoid mistakes.” Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 587 (2010). Such steps do not require that a debt collector take “every conceivable precaution to avoid errors,” only reasonable ones. Kort, 394 F.3d at 539. This inquiry is fact intensive and “susceptible of few broad, generally applicable rules of law.” Abdollahzadeh, 922 F.3d at 817. Compare id. at 817–18 (debt collector’s “un‐ questionably simple” procedures reasonably adapted to avoid the error of attempting to collect time‐barred debts), with Leeb v. Nationwide Credit Corp., 806 F.3d 895, 900 (7th Cir. 2015) (debt collector’s “thinly specified ‘policy,’” not reason‐ ably adapted to avoid sending improper collection letters). Juxtaposing the facts of these two appeals illuminates the meaning of “reasonably adapted” procedures. In Ewing’s case, MED‐1ʹs receptionist accidentally forwarded Ewing’s faxed dispute letter to the wrong department. Given the steps that MED‐1 had in place to prevent this sort of mistake, the judge was correct to conclude that MED‐1 had reasonably adapted procedures. The judge looked to MED‐1’s two writ‐ ten policies that explained, step‐by‐step, how a receptionist should properly direct legal faxes. And the judge

3 Webster alone argues that the judge erred with regard to the first element when she concluded that Receivables’s violation was uninten‐ tional. In her view, Receivables’s decision to stop monitoring its fax inbox was intentional. But Receivables needed to show only that its FDCPA vio‐ lation was unintentional, not that its actions were unintentional. Abdollah‐ zadeh, 922 F.3d at 815. The judge thus rightly concluded that Receivables met the first element. Nos. 21‐1276 & 21‐1299 15

appropriately found that these were the kind of “mechanical [] steps” that the defense requires. Though a mistake still oc‐ curred, an errant misdirected fax is just the kind of “occa‐ sional unintentional misstep” to which the bona fide error de‐ fense applies. Abdollahzadeh, 922 F.3d at 817. Ewing argues that MED‐1 needed to have a policy requiring departments to identify and forward misdirected faxes. The absence of such a policy, however, does not mean that MED‐1 failed to main‐ tain reasonably adapted procedures. If MED‐1’s step‐by‐step fax procedures had been followed, then the error that gave rise to this case would have been avoided. We see no reason to disturb the district courtʹs conclusion that those procedures were reasonably adapted to prevent it. In Webster’s case, however, we disagree with the judgeʹs finding that Receivables had reasonable procedures in place to prevent its error. Even though its fax number was still listed by a national registry, Receivables decided to stop checking its electronic fax inbox, without any announcement. And when Webster faxed her dispute letter, she received an elec‐ tronic confirmation that her letter had been received. It was not reasonable for Receivables to stop monitoring its fax inbox while allowing the system to continue sending confirmations that faxes had been received. Unwitting consumers such as Webster had no reason to know better. The judge, however, glossed over that specific issue. The judge asked broadly “whether [Receivables] ha[d] procedures in place to avoid incorrectly reporting debts that were dis‐ puted.” Noting Receivablesʹs general policies that “desig‐ nat[ed] how to handle disputed debts” and its practice of “up‐ dating its employees annually on procedure,” the judge con‐ cluded that Receivables had implemented procedures that 16 Nos. 21‐1276 & 21‐1299

were sufficiently adapted to avoid the possibility of faxed dis‐ putes going unreported. But these procedures do not account for the likely prospect that debtors would continue faxing dis‐ putes (at least until they had reason to know better) that Re‐ ceivables would not report. Receivables needed to have pro‐ cedures to address the actual error that occurred. See Kort, 394 F.3d at 537–38 (the bona fide error was narrower than, and led to, the FDCPA violation). Like the debt collector in Leeb whose “thinly specified ‘policy’” was inadequate because it did not address the error that occurred, see Leeb, 806 F.3d at 900, Re‐ ceivables’s unspecified FDCPA training for employees and general policy of reporting disputes does not suffice. For re‐ gardless of these imprecise policies, Receivables had no rea‐ sonable procedure in place to ensure that faxed disputes were reported. Nor did Receivables implement any reasonable pro‐ cedure to ensure that it would no longer receive faxed dis‐ putes in the first place. Unlike MED‐1’s one‐time misstep in Ewing, Receivables’s lack of procedures invited the error that occurred in this case. Until debtors and their attorneys knew that Receivables no longer accepted disputes by fax, it was entirely foreseeable that Receivables would continue receiving faxed disputes. Re‐ ceivables used no procedures to avoid the error that occurred, let alone reasonable ones, and so is not sheltered by the bona fide error defense. III. Conclusion For the foregoing reasons, in Ewing v. MED‐1, LLC, we AFFIRM, and in Webster v. Receivables, LLC, we REVERSE AND REMAND.