8th Cir. Says Debt Buyer is Subject to FDCPA Post-Henson; Says Debt Buyer Might Not Be Vicariously Liable for Activities of Debt Collector It Hired

In Reygadas v. DNF Assocs., LLC, No. 19-3167, 2020 U.S. App. LEXIS 38989 (8th Cir. Dec. 14, 2020), the Court of Appeals held that a debt buyer was subject to the FDCPA.

Emphasizing that the Supreme Court in Henson overruled the so-called “default test,” DNF argues that the debt buyer is a creditor — a person “to whom a debt is owed,” § 1692a(4) — and “the only way a creditor can become a debt collector is if the creditor uses a different name to collect debts owed to it,” as provided in the second sentence of § 1692a(6). . . .In other words, DNF urges us to construe the FDCPA as covering independent debt collectors when they perform collection actions for a fee, but not when they collect consumer debt purchased for their own account. The argument simply ignores the “principal purpose” definition, which applies to “any business” –which obviously includes a debt buyer such as DNF — whose “principal purpose . . . is the collection of any debts.” . . .DNF’s principal argument on appeal is that § 1692a(6) does not apply to “passive” debt buyers who hire independent law firms and collection agencies to collect the debts they purchase. The relevant definition of “collection” is “the act or process of collecting,” DNF explains, citing Webster’s Ninth New Collegiate Dictionary. The act or process of collecting requires an affirmative act of collecting, which requires interaction with debtors. The principal purpose of a passive debt buyer is “profiting on its investment,” with no direct “interaction” with consumers. The word “interaction” is conspicuously absent from the statute. We can agree a business’s “purpose” is shown by its actions. But the FDCPA’s principal purpose definition does not require the debt collector to “collect” debts; it must have as its “principal purpose . . . the collection of any debts.” Read together, the words “purpose” and “collection” require an act whose purpose is collection. The foreseeable and logical consequence of hiring lawyers and debt collection agencies to collect debts DNF has purchased is itself evidence of purpose. For example, a hospital’s purpose is providing healthcare to patients, even though it relies on independent physicians and other entities to provide the care. And if that is DNF’s exclusive method of doing business, as the summary judgment record established, then its “principal” purpose is “the collection of any debts.” As the Third Circuit stated this rather obvious deduction: [A]n entity that has the “collection of any debts” as its “most important” “aim” is a debt collector under this definition. . . . As long as a business’s raison d’être is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment. Barbato, 916 F.3d at 267; see McAdory v. M.N.S. Assocs., LLC, 952 F.3d 1089, 1094 (9th Cir. 2020) (in using the noun “collection,” Congress “did not specify who must do the collecting or to whom the debt must be owed”). DNF counters that its “passive” investment business consists of “sitting idly, hoping a consumer who is delinquent on her payment obligations will volunteer payment.” The argument distorts reality. DNF does not sit idly by, it takes affirmative steps to maximize collection of the debts it has purchased. Here, for example, DNF hired an attorney and commenced a state court collection action, signing sworn affidavits regarding the debt. When that failed, it hired RGS, a licensed debt collection agency. Purchase and collection are not separate activities for DNF; they are critical elements of its business plan. DNF’s reading of 15 U.S.C. § 1692a(6) impermissibly collapses the alternative definitions of debt collector. DNF does not challenge on appeal the district court’s statement that its “primary objective is to collect on debt accounts it purchased in order to turn a profit.” Therefore, on this summary judgment record, having considered the plain meaning of the statute’s text, together with the structure of the FDCPA, we conclude the district court did not err in ruling as a matter of law that DNF is a “debt collector” under § 1692a(6). We do not hold that any purchaser of defaulted consumer debt qualifies as a “debt collector” under the “principal purpose” definition. There may be truly “passive” buyers of such debt, akin to those who invest in municipal or commercial “junk bonds.” They would present a far different “principal purpose” question, as would consumer debt buyers who engage in a wider array of activities, such as originating consumer loans, reselling debt portfolios, or offering other financial services. We also do not hold that any debt buyer that hires an independent debt collector thereby becomes a debt collector under § 1692a(6).

The 8th Cir. held that the debt buyer might not be responsible for the actions of its debt collector, seemingly rejecting an argument to the non-delegate duty rule.

Reygadas instead argues that “DNF is directly, not vicariously, liable because it took action through its agent that it could not lawfully take,” and therefore RGS’s wrongful actions may be imputed to DNF. For support, Reygadas relies on Restatement (Third) of Agency §§ 7.03 and 7.04, published thirty years after the FDCPA was enacted, and on In re Sterling, a factually distinguishable bankruptcy contempt case in which the Seventh Circuit noted that its reasoning “would not apply in situations where there is no agency relationship,” such as a “creditor and debt-collector relationship under the Fair Debt Collection Practices Act.” 933 F.3d 828, 834 n.6 (7th Cir. 2019). DNF responds that “Reygadas has not identified a single [FDCPA] case that imposes direct liability on a party for actions undertaken by an independent third party,” particularly for an independent third party’s lawful actions. In granting summary judgment in favor of Reygadas, the district court stated: “Agency law makes a principal liable for the acts of its agent if those acts are within the scope of the agency.” In support, the court cited only Jones v. Filer, Inc., 43 F. Supp. 2d 1052, 1056 (W.D. Ark. 1999), a case discussing vicarious, not direct, liability  in which defendant was granted summary judgment because plaintiffs failed to prove an agency relationship. In this case, Reygadas’s direct liability theory assumes that an agency relationship existed between DNF and RGS. But we noted in Schmitt that “whether the relationship between a creditor and its debt collector is one of principal-agent,” or whether the debt collector was instead an independent contractor, was “not clear on this record.” 398 F.3d at 998. Analysis of this issue under “traditional agency principles” may differ when the creditor contracting with a debt collection agency is itself a debt collector. The district court failed to address these issues, and the record on appeal does not contain evidence establishing as a matter of law that DNF is directly liable, as a principal, for RGS’s lawful collection actions. Indeed, Reygadas did not put into evidence the agreement between RGS and DNF, which may explain why she did not move for summary judgment on the question of DNF’s liability. Without such evidence, RGS’s acts cannot be imputed to DNF to establish direct liability. Accordingly, we conclude the district court erred in granting partial summary judgment in favor of Reygadas sua sponte.