The opinion of the court was delivered by: CASTILLO
In this putative class action,
plaintiffs Javon Jenkins and David Terrafino allege that defendant Union Corporation and its subsidiary, Transworld Systems, Inc., violated numerous provisions of the Fair Debt Collection Practices Act ("FDCPA" or "Act") and the Illinois Collection Agency Act ("Illinois Act"). The three-count complaint stems from a series of form debt collection letters that the defendants sent on behalf of their creditor-clients.
The complaint claims that defendants violated the Act in four ways: 1) the letters contained false and deceptive language; 2) the letters overshadowed, contradicted, and obfuscated plaintiffs' rights to contest the validity of their debts; 3) the letters violated the FDCPA's proscription against threatening litigation that defendants had no intent or authority to bring;
and 4) the letters tried to collect service fees prohibited by both the FDCPA and the Illinois Act. The parties also contest whether defendant Union is sufficiently involved in debt collection activities to be held liable for the alleged statutory violations. Before the Court are the plaintiffs' motion for partial summary judgment on the FDCPA claims against defendant Transworld only, and defendants' cross-motion for summary judgment on all counts.
A. Union Corp. and Transworld Systems, Inc.
Defendant Union is a publicly held corporation whose principal place of business is in Greenwich, Connecticut. Def.'s Facts P 5. Union describes itself as a "pure financial services company," with a 1996 net worth of approximately $ 63 million. Pl.'s Add'l Facts Ex. B (Union Annual Report at 2-3). Through its five operationally decentralized subsidiaries, Union provides telephone-based services, including accounts receivable management, customer service, billing inquiry, credit authorization, and pre-charge-off receivables. Id. At the time of the events in this suit, Union's "core business" was accounts receivable management. Id.
Union is not licensed as a collection agency, is not assigned accounts for collection, generates no collection letters, and makes no telephone calls to debtors. Def.'s Facts P 8. Its corporate headquarters currently employs fewer than fifteen people, who are responsible for corporate strategy, policy and finance. Pl.'s Add'l Facts PP 6-7. Defendants describe Union's headquarters simply as the place where "they count the money." Dunn Dep. p. 30.
In 1985 Union purchased Transworld Systems Inc. from Gordon Dunn and others for $ 28 million. Def.'s Facts P 9. Union and Transworld had no connection before the purchase. Dunn Dep. p. 17. Before 1985, Union owned a variety of enterprises, including an airline in Puerto Rico, a foundry, a military contractor, and another debt collection agency. Pl.'s Add'l Facts P 1. The Transworld purchase was part of Union's plan to sell its unprofitable entities and focus on more profitable and growth-oriented businesses. Pl.'s Add'l Facts P 2. Since purchasing Transworld, Union has not changed Transworld's policies and practices. Def.'s Facts P 10.
Transworld Systems offers debt collection services from 139 offices nationwide, including Illinois, and has its principal place of business in Rohnert Park, California. Def.'s Facts P 10. Transworld has a net worth in excess of $ 11 million, does not have any significant debt, and does not receive loans from Union. Def.'s Facts PP 6, 10. Transworld is Union's most profitable subsidiary and, at the time of the events in this case, was responsible for a large portion of Union's profits. Pl.'s Add'l Facts P 5, Ex. B (Union Annual Report). Transworld distributes to Union an annual dividend that consists of all income beyond Transworld's immediate and long-range cash requirements -- an amount Transworld determines on its own. Dunn Dep. p. 32-33.
3. The Companies' Corporate Structure
As a Union subsidiary, Transworld has one officer who sits on Union's board of directors. Def.'s Facts P 9. Gordon Dunn, Transworld's former president and current chairman of the board, is that person. Id. His employment agreement is signed by both entities. Pl.'s Add'l Facts P 6. Nicholas Gill, Union's vice president, treasurer and secretary, is also a director of Transworld. Dunn Dep. at 26. Besides Dunn and Gill, the companies do not have common directors or officers. Def.'s Facts P 9. Transworld's current president, George Macaulay, does not do any consulting for Union or for any of Union's other subsidiaries or affiliates. Id. P 9.
Transworld does not share its office facilities, postal meters, insurance policies or a computer system with Union or any of Union's other subsidiaries or affiliates. Id. Union maintains no offices or employees in California, Transworld's base, and it does not own or lease any of Transworld's offices. Transworld and Union maintain their own accounting departments and keep separate corporate minute books. Id. Transworld has, however, used Union's auditors. Id.
Transworld provides debt collection services to more than 40,000 creditor-clients, both in its own name and under the name Credit Management Services. Pl.'s Facts PP 5-6. Creditor-clients initiate debt collection by filling out a "Start Service" transmittal slip -- the only document needed to trigger collection efforts for a particular debtor -- and mailing it to Transworld headquarters in California. Def.'s Facts P 19. The pre-printed "Start Service" slip directs the creditor to provide the debtor's name, address, date of the latest payment or charge, and the total debt figure to be collected. Id. Ex 1. The form specifically instructs the client to "COMBINE ALL INTEREST, FINANCE CHARGES AND OTHER FEES TO WHICH YOU ARE LEGALLY ENTITLED. ONE TOTAL FIGURE." It also provides a space for the creditor-client to indicate whether the creditor wants "diplomatic" or "intensive" collection efforts, and whether the service should include collection of a "NSF check." Id. The Start Service slip does not designate a space for the creditor to indicate that the debt arose from a "stopped check." Id.
Transworld is aware that the law prohibits attempting to collect fees unauthorized by law or contract. Accordingly, Transworld's "installation packet," a manual given to clients, instructs clients to include in the amount sought the fees "legally due" to them. Pl.'s Facts PP 30-33. Transworld also relies on its creditors to state with accuracy the amounts legally due and owing from the debtor, the date the debt arose, and the debtor's last known address. Def.'s Facts P 20. Transworld assumes that its clients add "service fees" to dishonored checks; these clients have the option of sending a pre-printed Transworld collection letter that states, "The amount due includes a service fee, which must also be paid." Pl.'s Facts P 32. It is not Transworld's procedure or policy to compound the outstanding debt with a service charge when the debtor has stopped payment. Def.'s Facts P 22. Nevertheless, Transworld does not specifically advise the creditor-client against collecting on checks stopped because of a debtor-merchant dispute. Pl.'s Facts P 36. Transworld does instruct creditors that they may not attempt to collect from debtors who have filed for protection under bankruptcy laws. Id. P 35.
If a creditor has a question about its legal entitlement to a particular charge, Transworld refers the creditor to its own attorney, and has issued memos instructing its sales representatives to do the same. Def.'s Facts P 24. Transworld does not determine the propriety of creditors' additional fees or give any legal advice. Id. P 20.
Transworld's efforts to collect debts from plaintiffs Jenkins and Terrafino surfaced in a series of standard form letters mailed to each approximately 14 days apart. None of the letters to Jenkins or Terrafino identifies or makes any reference to Union, or otherwise indicates any relationship between Transworld and Union. Def.'s Facts P 25. Neither Jenkins nor Terrafino contacted Transworld to dispute their debts or to request validation of the total debt figures stated in their letters. Def.'s Facts P 23.
In October 1995, Javon Jenkins bought a used car from Montell Pontiac in Blue Island, Illinois. She delivered a personal check for $ 1000, a portion of the purchase price. On October 17, 1995, Jenkins stopped payment on the check, claiming that the car was defective. Def.'s Facts P 12; Pl.'s Facts P 3. Montell Pontiac responded on October 23 by completing Transworld's "Start Service" form and authorizing collection efforts on Jenkins' debt. Def.'s Facts P 14. Montell indicated on the form that $ 1,025 was legally due and owing from Jenkins, and requested "intensive" efforts to collect it. Montell also marked, erroneously, an "X" in the space for "NSF [dishonored] check," which added $ 25 to Jenkins' $ 1000 debt. Def.'s Facts P 16, Ex. 1.
Using its own name, Transworld mailed Jenkins three "intensive" standard form collection letters dated November 1, 13 and 24, 1995, seeking the $ 1,025 that Montell Pontiac claimed was due. The first letter included text designed for collecting dishonored checks:
Our client has requested that we contact you regarding your check which has been returned by the bank and payment refused. We realize this could be an oversight on your part and not willful disregard of an obligation.
However, intentional payment with a dishonored check for goods or services can lead to serious consequences.
The amount due includes a service fee, which must also be paid. To avoid any possible misunderstanding, it is important you immediately make payment to or arrangements with [Jerry Montell Pontiac].
In smaller print located beneath the main text and just above the printed directive "detach and return with payment" was a validation notice required by the FDCPA:
Transworld Systems, Inc. is a licensed collection agency and any information obtained from you will be used for the purpose of collecting this debt. All portions of this claim shall be assumed valid unless disputed within thirty days of receiving this notice. If disputed in writing, verification of the debt will be provided to you. If the original creditor is different from the above named creditor, the name and address of the original creditor will also be provided.
The second form letter, dated November 13, reads:
IMPERATIVE - Grace period about to expire. Our client shows an unpaid account in the above stated amount appearing legally due and owing by you.
This account has been referred to our agency and we are authorized to pursue collection. With offices nationwide, a number of alternatives are available to us to effect settlement.
You may eliminate the possibility of additional trouble and make further communication unnecessary by contacting your creditor at once. Be sure to enclose this letter with your payment for proper identification.
On November 24, 1995, approximately 24 days after the first standard letter and eleven days after the second letter, Transworld sent a third letter to Jenkins:
Above claim still due. Federally mandated dispute period will expire within 10 days. Unless we hear from you, at that time we will assume your debt to be legally due.
Please be advised that there are two ways of settling a legitimate debt - timely payment or as the result of protracted and unpleasant collection effort. At this time the choice is still yours.
Make further effort on our part unnecessary by making payment to [Jerry Montell Pontiac].
On August 22, 1995, Transworld sent Terrafino an initial "intensive" collection letter, which sought to collect $ 150.40 allegedly owed to Glenoaks Medical Center.
Transworld sent Terrafino a second letter dated September 5, 1995 and a third dated October 3, 1995.
The August 22 letter read:
URGENT - This account has been assigned to our agency for immediate collection.
Please be advised that we have been authorized to pursue collection and are committed to make whatever efforts are necessary and proper to effect collection.
Strongly recommend you contact our client to make payment arrangement.
This letter also included the required validation notice in the same language, print size and location as the first Jenkins letter. On September 5, 1995, Transworld sent Terrafino the same second form letter that it sent to Jenkins.
Transworld sent Terrafino a third, more detailed letter on October 3:
As Collection Manager of Transworld Systems Inc., I thought it important to state our intentions regarding your debt. The economic feasibility of some type of litigation by our client has not been determined.
It is not my intention to threaten or alarm you about this matter but merely to point out the problems of refusing to pay what ...