District Court (Ill.) Holds that Filing of a Legally Defective Debt Collection Suit can violate § 1692e Where the Filing Falsely Implies that the Debt Collector has Legal Recourse to Collect the Debt

In Grant–Hall v. Cavalry Portfolio Services, LLC, 2012 WL 619651 (N.D.Ill. 2012), Judge Feinerman held that a debt collection agency was vicariously liable for the conduct of their attorneys, and that the filing of a defective lawsuit can violate the FDCPA where the filing falsely implies that the debt collector has legal recourse against the debt.

The filing of a legally defective debt collection suit can violate § 1692e where the filing falsely implies that the debt collector has legal recourse to collect the debt. In Gearing v. Check Brokerage Corp., 233 F.3d 469 (7th Cir.2000), a company called Check Brokerage purchased from Ayerco, a convenience store, a bad check that Gearing had written to Ayerco; Check Brokerage then brought a debt collection action against Gearing. Id. at 471. Illinois law provided at the time that the subrogee (there, Check Brokerage) of a bad check’s payee (there, Ayerco) could sue for the face value of the check, treble damages up to $1,500, and attorney fees and costs. Ibid. Unfortunately for Check Brokerage, its purchase agreement with Ayerco did not make it Ayerco’s subrogee, meaning that it was prohibited from suing Gearing on the check. Id. at 472. The Seventh Circuit held that Check Brokerage had violated § 1692e because its state court complaint incorrectly alleged that it was Ayerco’s subrogee, thus giving “a false impression as to the legal status it enjoyed.” Ibid.; see also Manlapaz v. Unifund CCR Partners, 2009 WL 3015166, *2–3, 5 (N.D.Ill. Sept.15, 2009) (holding that the plaintiff stated an FDCPA claim where the defendant allegedly filed a debt collection suit for an account it did not own); Matmanivong v. Unifund CCR Partners, 2009 WL 1181529, *5 (N.D.Ill. Apr.28, 2009) (same); Foster v. Velocity Investments, LLC, 2007 WL 2461665, at *2 (N.D.Ill. Aug.24, 2007) (same). Gearing applies with equal force here, where Calvary allegedly brought debt collection actions against Plaintiffs even though it lacked the documentation required by § 8b of the ICAA, thus giving the “false impression” that it had the “legal status” necessary under § 8b to file the suits. Grant–Hall also has an independent § 1692e claim based on Kelly’s alleged threat to file a collection action without the required documentation. See Day, 511 F.Supp.2d at 956–57 (citing § 1692e(5)). Because the amended complaint states a claim under § 1692e, there is no need at this point to consider whether Plaintiffs’ allegations also support a claim under § 1692f.