6th Cir. Applies “Objectively Baseless” Standard to Ipso Facto Rule When Debt Collector Loses Prosecution of Action on the Debt

In Snyder v. Finley & Co., L.P.A., No. 21-3997, 2022 U.S. App. LEXIS 16512, at *1 (6th Cir. June 15, 2022), the Court of Appeals for the 6th Circuit explained how, and when, a debt collector can be found liable when losing litigation on the debt itself; i.e. does the debt collector ipso facto violate the FDCPA when it loses such litigation?

So how do we distinguish between a non-winning claim that violates the FDCPA and a non-winning claim that does not? Our recent decision in Van Hoven instructs that when evaluating an alleged FDCPA violation in a legal action, “a lawyer does not `misrepresent’ the law by advancing a reasonable legal position later proved wrong.” Id. at 896. Instead, we held, courts must determine “whether the legal contention was objectively baseless at the time it was made, making it legally indefensible or groundless in law.” Id. (internal quotation marks and citation omitted and emphasis added). That would include, for example, “misquoting a case, relying on a statute no longer in existence, . . . invoking an overruled decision,” “claim[ing] that a one-year statute of limitations runs for two years,” “say[ing] today that the [FDCPA] does not apply to attorneys collecting debts,” “suing on a time-barred debt,” and “filing a writ of garnishment against a debtor current on his payments.” Id. at 895-96 (collecting cases).  Finley sought to hold plaintiff liable for her husband’s outstanding legal bills via Ohio’s Necessaries Statute, Ohio Rev. Code § 3103.03. . . .The parties primarily focus on whether attorneys’ fees constitute “necessaries” under the Necessaries Statute. So too did the district court. It concluded that Finley’s claim against plaintiff was “at the very least, arguable” because the Ohio Supreme Court has twice held that certain attorneys fees’ are recoverable against a spouse. See Wolf v. Friedman, 253 N.E.2d 761, 765-67 (Ohio 1969); Blum v. Blum, 223 N.E.2d 819, 820-21 (Ohio 1967). Therefore, in the district court’s view, no FDCPA liability could lie against Finley. But we need not consider whether the Necessaries Statute includes the attorneys’ fees at issue here because Finley’s lawsuit did not comply with the law’s threshold procedural requirements.  A little less than a year before Finley filed its debt-collection claim against plaintiff, the Ohio Supreme Court expounded upon a nondebtor-spouses’s liability under the Necessaries Statute. In Embassy Healthcare, the Ohio Supreme Court held that “each married person retains primary responsibility for supporting himself or herself from his or her own income or property,” and a “nondebtor spouse becomes liable only if the debtor spouse does not have the assets to pay for his or her necessaries.” 122 N.E.3d at 121. Because of this contingeny, Embassy Healthcare requires a creditor to exhaust its debt-collection efforts against the debtor before attempting to collect from a spouse. Specifically, the Ohio Supreme Court held that “[a] creditor must . . . first seek satisfaction of its claim from the assets of the spouse who incurred the debt. [The Necessaries Statute] does not impose joint liability on a married person for the debts of his or her spouse.” Id. (emphasis added).  Embassy Healthcare clearly establishes that defendant’s debt-collection lawsuit against plaintiff was objectively baseless. As the Ohio Court of Appeals recognized, Finley’s “claim against Michelle is contingent” on its claims against Charles. Zukerman, 2021 WL 2837215, at *1. But when Finley sued Michelle, it had not satisfied the prerequisites to collect from her. There was no finding that its claims against Charles were meritorious or that he lacked the assets to pay for those claims. Embassy Healthcare required Finley to “first seek satisfaction of its claim from” Charles and prohibited it from filing a joint-liability suit against Charles and Michelle without clearly stating that its claim against Michelle was contingent. 122 N.E.3d at 121. Finley did not follow Embassy Healthcare’s express commands. If “misquoting a case, relying on a statute no longer in existence, . . . invoking an overruled decision, [or] . . . suing on a time-barred debt” runs afoul of the FDCPA, Van Hoven, 947 F.3d at 895-96, asserting a claim against a party under circumstances in which a state supreme court has explicitly held that the party cannot be held liable certainly does as well.