Zoltan v Credit Collection Servs.

[*1] Zoltan v Credit Collection Servs. 2023 NY Slip Op 23140 Decided on May 4, 2023 Supreme Court, Rockland County Zugibe, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on May 4, 2023
Supreme Court, Rockland County

Rabold Zoltan, Plaintiff,

against

Credit Collection Services, Defendant.



Index No. 036901/2021



Daniel Zemel, Esq. of Zemel Law LLC for plaintiff Rabold Zoltan

Matthew B. Johnson, Esq. of Gordon Rees Scully Mansukhani, LLP for defendant Credit Collection Services
Thomas P. Zugibe, J.

The following e-filed documents, listed by NYSCEF document number: 1, 9-21, 24-27 and 29 were read on this motion for summary judgment pursuant to NY Civ. Prac. L. & R. ("CPLR") 3212.

This case examines the relationship and actions between three primary entities: Rabold Zoltan, the plaintiff and debtor; Credit Collection Services, the defendant and the debt collection agency; and an unnamed third-party letter vendor, which Credit Collection Services hired to facilitate communication with Rabold Zoltan.

The case originated when Rabold Zoltan fell into debt. The nature of this debt is not detailed in the initial case summary, but it is clear that Zoltan owed money that he was unable to repay. As a result, his debt was acquired by Credit Collection Services, a corporation that self-identifies as a debt collector. This is an important distinction, as it brings their actions under the jurisdiction of 15 U.S.C. § 1692, the Fair Debt Collection Practices Act.

In an attempt to recover the outstanding debt, Credit Collection Services engaged the services of a third-party letter vendor. This vendor's task was to print and mail a collection letter to Rabold Zoltan. The transfer of Zoltan's personal and debt information to this third-party vendor is a critical issue in this case.

Credit Collection Services does not dispute the fact that it transmitted this information to the vendor. However, it contends that because the vendor is not a "person," as defined by the Fair Debt Collection Practices Act, its actions did not constitute a statutory violation. This argument forms the crux of Credit Collection Services' defense. Moreover, Credit Collection [*2]Services has argued that Rabold Zoltan lacks standing to sue under the Fair Debt Collection Practices Act based on the assertion that the transmission of information to the third-party vendor did not cause Zoltan any concrete harm.

Rabold Zoltan, on the other hand, argues that the transmission of his information to the third-party vendor was a breach of his rights under the Fair Debt Collection Practices Act. He asserts that the Act's protections should extend to cover this situation, and that Credit Collection Services should be held liable for their actions.

It is within this context that the Court is tasked with interpreting and applying the provisions of the Fair Debt Collection Practices Act. The court's decision hinges on whether the third-party letter vendor can be considered a "person" under the Act, and whether Credit Collection Services' transmission of information to the vendor can be classified as a "communication" under the same legislation. These determinations will have significant implications for the plaintiff, the defendant, and potentially for the broader practices of debt collection.

Discussion

In situations where state law is silent and a resolution can be achieved exclusively through federal law, it is incumbent upon New York State courts to adhere to a consistent federal standard. (See Alvez v Am. Exp. Lines, 46 NY2d 634, 639 [1979].) Consequently, the Fair Debt Collection Practices Act is the governing statute in this case.

It is "fundamental that summary judgment should only be granted where there are no material and triable issues of fact." (Paulin v Needham, 28 AD3d 531, 531 [2d Dept 2006].) A motion for summary judgment should not be granted where there are facts in dispute, where conflicting inferences may be drawn, or where there are issues of credibility. (See Baab v HP, Inc., 211 AD3d 783, 783 [2d Dept 2022] [noting that the court's function in determining whether to grand summary judgment is issue finding rather than issue determination].)

I. Violation of the Fair Debt Collection Practices Act

The underlying issue in this case is that Credit Collection Services used a third-party letter vendor to contact Rabold Zoltan, and in doing so, transmitted information regarding Rabold Zoltan's debt to the vendor. Under the Fair Debt Collection Practices Act, a debt collector cannot communicate with a third party (outside of the consumer's attorney, the creditor, the creditor's attorney, the debt collector's attorney, or a consumer rating agency as otherwise authorized by law) about a consumer's debt unless the consumer consents to the communication, a court permits the contact, or the communication is "reasonably necessary to effectuate a post-judgment remedy." (§ 95:19. The Fair Debt Collection Practices Act—Limits on communication, 4C NY Prac., Com. Litig. in New York State Courts § 95:19 (5th ed) quoting 15 U.S.C.A. § 1692c(b).) § 1692(a) of the Fair Debt Collection Practices Act defines the term "communication" to mean the (1) conveying of information regarding a debt, either (2) directly or indirectly, to (3) any person, and (4) through any medium. In interpreting the statute, the court in Pipiles noted that the language of the statute is "clear and unambiguous" in that it applies to "all communications." (Pipiles v Credit Bureau of Lockport, Inc., 886 F2d 22, 27 [2d Cir 1989] [emphasis added].)

As an initial matter, Credit Collection Services argues that there was no statutory violation as the vendor it used is not a "person" and only communications to third party persons may constitute violations of the Fair Debt Collection Practices Act. With this, Credit Collection Services does not dispute that it transmitted information to a third-party letter vendor for the purpose of printing and mailing a collection letter to Rabold Zoltan. (See NYSCEF No. 10 [Credit Collection Services' memo. of law in support].) However, Credit Collection Services, a corporation, identifies itself as a debt collector on multiple occasions. (See, e.g., NYSCEF Nos. 10 [Credit Collection Services' memo. of law in support]; 11 at 1 [Credit Collection Services' statement of material facts].)

The Fair Debt Collection Practices Act defines a "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 . . ." (15 U.S.C.A. §1692(a)(6).) The statute's definition of "person" is broad, encompassing a variety of entities. If the drafters of the legislation intended to restrict the term to only natural persons, they would have explicitly stated such. Consequently, Credit Collection Services' argument that a letter vendor cannot constitute a person under the Fair Debt Collection Practices Act is without merit. The Court finds as a matter of law that a letter vendor may be considered a person within the context of the Fair Debt Collection Practices Act.

Next, courts have generally been inclined to adopt a debtor-friendly approach when assessing claims of Fair Debt Collection Practices Act violations. It is a well-established principle that the determination of whether an alleged violation has occurred should be made from the perspective of the "least sophisticated consumer," which sets a relatively low threshold. However, the court in Youngblood sought to refine this standard even further, asserting that:

"If words mean things, and if we should mean the words that we use, we must not adopt a standard called the 'least sophisticated consumer' standard. At the very least, it should be renamed, if not discarded altogether. The 'unsophisticated consumer' standard is more practical, if only because its name more accurately describes those whom it protects. It protects those who are not exceptionally bright or blessed with intellect, those who are particularly gullible and credulous, and those who are quite naive and trusting." (Youngblood v GC Servs., Ltd. P'ship, 186 FSupp2d 695, 698 [WD Tex 2002].)

The Youngblood court advocated for a shift in focus from the "least sophisticated consumer" to the "unsophisticated consumer" standard, emphasizing that the latter more accurately represents the broad class of consumers the Fair Debt Collection Practices Act seeks to protect, which is quite a broad class.

Moreover, the legislative aim of the Fair Debt Collection Practices Act is to "shield consumers from an array of unfair, harassing, and deceptive debt collection practices, while avoiding the imposition of undue constraints on ethical debt collectors." (S. Rep. No. 95-382, at 1 [1977], reprinted in 1977 U.S.C.C.A.N. 1695, 1696.) To accomplish this objective, the Fair Debt Collection Practices Act employs an expansive definition of "communication" under its provisions. A communication is considered to fall within the scope of the Fair Debt Collection Practices Act if it is carried out, even in part, to persuade the consumer to settle a debt.

The recent case of Hunstein v. Preferred Collection & Management Services, Inc. is illustrative here, with the Eleventh Circuit both relying on and expanding upon the recent [*3]precedent established by the aforementioned TransUnion decision. (See Hunstein v. Preferred Collection & Management Services, Inc., 994 F.3d 1341 [2021], rev'd, 17 F.4th 1016 [2021], reh'g en banc granted and vacated, 17 F4th 1103 [2021], reh'g en banc vacated and remanded, 48 F4th 1236 [2022].) The case involved Richard Hunstein, who incurred medical debt following his son's treatment at Johns Hopkins All Children's Hospital. (See Hunstein, 48 F4th 1236 at 1240). Hunstein failed to pay the outstanding hospital bill, which led to the debt being transferred to Preferred Collection and Management Services, a debt collection agency. Subsequently, Preferred engaged CompuMail Information Services, Inc., a commercial mail vendor, to facilitate communication with Hunstein. In doing so, Preferred shared Hunstein's personal information, including his name, his son's name, and the amount due, with CompuMail. CompuMail then used this information to generate a form letter that it mailed to Hunstein. Upon receiving the letter, Hunstein filed a lawsuit against Preferred, claiming that the disclosure of his personal information to CompuMail violated the Fair Debt Collection Practices Act.

Initially, a panel of the Eleventh Circuit requested supplemental briefing on the issue of standing, following which it agreed with the district court's decision that Hunstein had standing and reversed the dismissal for failure to state a claim. (See Hunstein, 994 F.3d 1341, 1345-1352 [2021].) However, after the Supreme Court issued its decision in TransUnion, the panel vacated its opinion but subsequently issued a new one that maintained the same outcome. (See 17 F4th 1103 [2021].) The Eleventh Circuit then decided to review the case en banc, ultimately vacating and remanding the decision. (See 48 F4th 1236 [2022].)

In the majority opinion authored by Judge Grant and joined by Chief Judge William Pryor and Judges Tjoflat, Wilson, Branch, Luck, Lagoa, and Brasher, the court held that Hunstein failed to allege a concrete harm and, therefore, lacked standing. (Hunstein, 48 F4th at 1250.) Notwithstanding this holding, the court did not reverse its previous determination that defendant debt collector's transmission of plaintiff's personal information to third-party letter vendor constituted a communication "in connection with the collection of any debt" under § 1692c(b) and thus a violation of the Fair Debt Collection Practices Act. (Hunstein, 994 F3d at 1344 [quoting 15 U.S.C.A. § 1692c(b) [observing that "our interpretation of § 1692c(b) [of the Fair Debt Collection Practices Act] may necessitate debt collectors (at least temporarily) to bring many of the services they previously outsourced in-house, potentially at significant expense].)

Moreover, in explaining its interpretation of the Fair Debt Collection Practices Act violations, the court in Shields noted that it "found a plaintiff who received one improper call about her alleged debt could pursue a Fair Debt Collection Practices Act claim." (See Shields v Professional Bureau of Collections of Maryland, Inc., 55 F4th 823, 829 [10th Cir 2022] [emphasis added].) A disclosure of private information has been "traditionally recognized as providing a basis for lawsuits in American courts." (Lueck v Bureaus, Inc., 2021 WL 4264368, *4 [ND IL 2021] [quoting TransUnion, 141 SCt at 2204].) And, the court in Ferriol noted that the transmission of a debtor's information by a debt collector to a third party is a "statutory violation" of the Fair Debt Collection Practices Act. (See Ferriol v Receivable Performance Management, LLC, 2022 WL 4376007, *2 [SD FL 2022].) As did the court in Feist. (See Feist v Arcadia Recovery Bureau, LLC, 2022 WL 4331583, *2 [ED PA 2022] [finding that defendants' using of a third-party letter vendor to mail a collection letter to plaintiff-debtor constituted a violation of the Fair Debt Collection Practices Act].)

With that, on November 30, 2021, following an extensive development process, the Consumer Financial Protection Bureau issued its definitive Debt Collection Rule in two distinct [*4]parts with the aim of interpreting the Fair Debt Collection Practices Act. The Debt Collection Rule addresses various aspects of debt collection communications, including their definition, scope, and permissible methods. Section 1006.2(b) of the Rule establishes a broad definition of "attempt to communicate," encompassing "any act to initiate a communication or other contact about a debt with any person through any medium, including by soliciting a response from such person." This definition explicitly incorporates limited-content messages. (See 12 C.F.R. § 1006.2(b)). As a result, the Debt Collection Rule clarifies that debt collectors' efforts to communicate with consumers falls within the purview of the Fair Debt Collection Practices Act, even if the consumer remains unreachable. And, Section 1006.6(b) confirms that even messages with limited content are subject to the prohibitions of the Fair Debt Collection Practices Act.

In Section 1006.6(d), the Debt Collection Rule makes modest revisions to Section 1692c(b) of the Fair Debt Collection Practices Act regarding third-party communications. Within this, the Debt Collection Rule offers a safe harbor for email and text communications. (See 12 C.F.R. § 1006.2(d)). A debt collector may assert a bona fide error defense if they maintain procedures to reasonably confirm and document their communication with the consumer through one of the following methods:

First, the defense is applicable when using an email address or sending a text message to a phone number recently employed by a consumer to contact the debt collector for purposes other than opting out of electronic communications. (See 12 C.F.R. § 1006.6(d)(4)(i)(A), (d)(5)(i)). Second, a debt collector may communicate through a non-work email provided to the original creditor or a prior debt collector if the initial creditor or prior debt collector disclosed specific information and the consumer did not opt out within the prescribed timeframe. (See 12 C.F.R. § 1006.6(d)(4)(ii), (iii)). A non-work email address is defined by specific criteria. (See 12 C.F.R. § 1006.6(d)(4)(ii)(E)). Lastly, a debt collector may communicate via text message to a non-work phone number under certain conditions related to consumer consent, recent communications, and consumer opt-out. (See 12 C.F.R. § 1006.6(d)(5)).

Here, Credit Collection Services' conduct does not fit within any of these defenses. In addressing the multifaceted aspects of debt collection communications, the Debt Collection Rule significantly enhances the clarity and guidance available to both debt collectors and consumers, enabling them to better navigate the requirements and protections set forth by the Fair Debt Collection Practices Act. This comprehensive regulatory framework serves to minimize ambiguities and establish clear expectations for all parties involved in the debt collection process.

In the present case, the Court is called upon to determine whether Credit Collection Services' act of conveying information to a third-party letter vendor constitutes a "communication" under the Fair Debt Collection Practices Act and thus a violation of it. Now, after careful analysis, the Court concludes that, as a matter of law, Credit Collection Services' actions do indeed qualify as a communication within the purview of the Fair Debt Collection Practices Act. In engaging a third- party vendor to create and send a collection letter to Rabold Zoltan, Credit Collection Services' intent was to facilitate the repayment of the debt owed to it by Rabold Zoltan, which aligns with the statutory definition of a communication under the Fair Debt Collection Practices Act. The involvement of the third-party vendor in the debt collection process does not absolve Credit Collection Services from the responsibility to adhere to the provisions of the Fair Debt Collection Practices Act.

II. Standing under the Fair Debt Collection Practices Act

In 1977, Congress enacted the Fair Debt Collection Practices Act to "protect consumers from a host of unfair, harassing, and deceptive debt collection practices" including, but not limited to, threatening violence, or publicly disclosing a debtor's information. (See S. Rep. No. 95-382 at 1-2 [1977] [highlighting the "suffering and anguish" regularly inflicted by third-party debt collectors].) The legislative history of the Fair Debt Collection Practices Act underscores the abundance of abusive debt collection practices and the serious consequences they have on individuals and families.

Within the Fair Debt Collection Practices Act's declaration of purpose, Congress specifically noted that such abusive practices were rampant and had far-reaching negative effects on the lives of those subjected to them. These consequences included a significant number of personal bankruptcies, increased marital instability, job loss, and invasions of individual privacy. (See 15 U.S.C.A §1692(a).) By enacting the Fair Debt Collection Practices Act, Congress sought to mitigate these harmful effects and provide a framework for fair and ethical debt collection practices, ultimately aiming to safeguard consumers from the damaging consequences of unethical debt collection tactics.

Congress enacted the Fair Debt Collection Practices Act with dual objectives in mind. The primary aim was to provide American consumers with protections that were previously absent under state law, addressing the widespread issues related to abusive debt collection practices. (See Bills to Amend the Consumer Credit Protection Act to Prohibit Abusive Practices by Debt Collectors: Hearing on S. 656, S. 918, S. 1130, and H.R. 5294 Before the Subcomm. on Consumer Affs. of the S. Comm. on Banking, Housing, and Urban Affairs, 95th Congress 18 [1977] ["Fair Debt Collection Practices Act Senate Hearings"] [statement of Rep. Frank Annunzio, Chairman, H.R. Subcomm. on Consumer Affs.].) The legislation aimed to create a robust framework that would protect consumers from harassment, deception, and other devious practices by debt collectors.

Simultaneously, Congress also sought to preserve the rights of creditors to collect legitimate debts, acknowledging the importance of balancing consumer protection with the practical need for debt collection in maintaining a functioning credit market. (See e.g., id. at 31 [statement of Sen. Joe Biden] ["[w]e don't want to make it—and I know the chairman doesn't want to make it—exceedingly difficult for someone to collect a legitimate bill"].) Through the enactment of the Fair Debt Collection Practices Act, Congress aimed to strike a balance between safeguarding consumers from abusive debt collection practices and preserving the ability of creditors to recover rightfully owed debts.

To enforce the provisions, the statute authorizes both the Federal Trade Commission ("FTC") and Consumer Financial Protection Bureau to bring enforcement actions. (See 15 U.S.C.A. § 1692l [administrative enforcement].) But neither of these agencies do much enforcement.[FN1] Instead, the Senate Banking Committee clarified enforcement in their 1977 report, [*5]bluntly stating that "this legislation [is] primarily self-enforcing . . . [with] consumers who have been subjected to collection abuses [tasked with] . . . enforcing compliance." (S. Rep. No. 95-382, at 5 [1977]).

Credit Collection Services argues that Rabold Zoltan has no standing as he suffered no injury from the third-party communication. The Article III standing doctrine is essentially a test of whether a plaintiff can show that an "injury-in-fact" has occurred. (See e.g., Association of Data Processing Service Organizations, Inc. v Camp, 397 US 150, 152 [1970] [noting that the "first question is whether plaintiff alleges that the challenged action has cause him injury in fact, economic or otherwise].) Not only this, but the injury must be "concrete." (See Antonin Scalia, The Doctrine of Standing as an Essential Element of the Separation of Powers, 17 Suffolk U.L. Rev. 881, 895 [1983] [noting that only a concrete injury "can separate plaintiff from all the rest of us."]). The existence of an injury in fact ensures that the party seeking review has some concrete interest in prosecuting the action which casts the dispute "in a form traditionally capable of judicial resolution." (Schlesinger v Reservists to Stop the War, 418 US 208, 220-221 [1974].)

The standing requirement in Federal actions has been grounded in the Federal Constitutional requirement of a case or controversy. (See US Const, art III, § 2, cl 1; Valley Forge Christian College v Americans United for Separation of Church and State, Inc., 454 US 464, 471 [1982].) This requirement has no analogue in the New York State Constitution. Nevertheless, under common law, a New York State court has no "inherent power to right a wrong unless thereby the civil, property or personal rights of plaintiff in the action or the petitioner in the proceeding are affected." (Schieffelin v Komfort, 212 NY 520, 530 [1914].) The New York State requirement of an injury in fact for standing purposes aligns with longstanding New York State court policy not to render advisory opinions. (See e.g., Cuomo v Long Is. Light. Co., 71 NY2d 349, 354 [1988] [noting that "the courts of New York do not issue advisory opinions"].)

Recently, the standing doctrine has undergone a significant change. In the case of TransUnion LLC, the U.S. Supreme Court addressed whether plaintiffs with Fair Debt Collection Practices Act claims had standing under Article III to proceed in Federal court. (See TransUnion LLC v Ramirez, 141 SCt 2190 [2021] [Kavanaugh, J.].) The class action suit involved consumers alleging that TransUnion included inaccurate information on their credit reports, leading to the denials of both credit and employment. Initially, the district court certified a class of around 8,000 members and awarded $1,000 in statutory damages per member, along [*6]with $40 million in punitive damages. The Ninth Circuit upheld both the class certification and statutory damages but vacated the punitive damages. (See Ramirez v TransUnion LLC, 951 F3d 1008 [9th Cir 2019].)

Subsequently, TransUnion appealed to the Supreme Court, arguing the class lacked standing due to the absence of concrete harm. The Supreme Court agreed, emphasizing that a plaintiff must demonstrate more than a statutory violation, and that the harm must be both particularized and concrete. The Court found that only about 1,800 class members suffered concrete harm, as their credit reports were provided to third parties who made significant adverse decisions. The remaining members did not experience concrete harm, and the Court rejected the argument that intangible harms like anxiety or stress were sufficient to establish standing without a concrete injury. Instead, the Court noted that without showing a statutory violation and additional harm, a plaintiff has no federal case. (See TransUnion, 141 SCt at 2205).

Moreover, the Court clarified that while Congress' views on whether a harm is sufficiently concrete "may be instructive," courts may not assume that the existence of a statutory prohibition or obligation automatically elevates that prohibition or obligation to a harm that is concrete under Article III. (TransUnion, 141 SCt at 2204-2205.) With its decision, the Supreme Court created a difference between a plaintiff's statutory cause of action to sue a defendant over that defendant's violation of federal law, and a plaintiff's suffering concrete harm because of defendant's violation of federal law. (Id. at 2205.)

In consideration of this ruling, it is now established that a federal statutory right can only provide a remedy if the violation resulted in a harm that shares a common law counterpart. In the present case, Rabold Zoltan claims an injury due to the "disclosure of his information to a third-party, a personal violation that allows redress by the statute." (NYSCEF No. 24 at 21 [Rabold Zoltan's memo. of law in opp.].) However, this assertion is vaguely articulated and fails to meet the heightened standing requirements previously discussed. Consequently, the Court determines as a matter of law that Rabold Zoltan lacks standing to pursue this action.

Therefore, it is now

ORDERED that Credit Collection Services' motion for summary judgment is granted; and it is further

ORDERED that Rabold Zoltan's complaint is dismissed without prejudice; and it is further

ORDERED that within twenty (20) days of entry of this decision and order, Credit Collection Services shall serve a copy of this order with notice of its entry on all parties, and on the office of the County Clerk, which shall enter judgment accordingly.

Dated: May 4, 2023

____________________________________

Hon. Thomas P. Zugibe, J.S.C. Footnotes

Footnote 1:Although the Consumer Financial Protection Bureau acknowledges debt collection as "one of the most prevalent consumer complaint topics," and received a staggering 82,700 complaints in 2020, the agency initiated a mere four (4) enforcement actions that year. (See Consumer Financial Protection Bureau's Annual Report 2021, 3 [2021] https://files.consumerfinance.gov/f/documents/cfpb_Fair Debt Collection Practices Act_annual-report-congress_03-2021.pdf). Similarly, the Federal Trade Commission filed only seven (7) actions pertaining to debt collection. (See id. at 5.) In stark contrast, private plaintiffs took matters into their own hands, filing over 6,800 Fair Debt Collection Practices Act lawsuits in the same year. (See WebRecon Stats for Dec 2020 and Year in Review, WebRecon LLC https://webrecon.com/webrecon-stats-for-dec-2020-and-year-in-review/). This discrepancy between government enforcement and private litigation underscores the critical role private plaintiffs play in holding debt collectors accountable for their actions and maintaining the integrity of the consumer protection framework established by the Fair Debt Collection Practices Act.