United States District Court, Northern District of Illinois, Eastern Division
March 19, 1999
NATHANIEL SCOTT, PLAINTIFF,
UNIVERSAL FIDELITY CORPORATION, AND TERRY W. SIMONDS, DEFENDANTS.
The opinion of the court was delivered by: Keys, United States Magistrate Judge.
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on Plaintiff's Motion to
Compel Defendants to produce responses to written discovery
requests. Whether to grant the motion turns on the meaning of
"net worth" under the Fair Debt Collection Practices Act ("the
FDCPA"), 15 U.S.C. § 1692 et seq.*fn1 For the reasons set
forth below, Plaintiff's motion is granted.
This action arises out of a claim under the FDCPA. Plaintiff
Nathaniel Scott is a debtor from whom Defendants sought to
collect a balance of $194.66 owed on his Sears credit card.
(Complaint at 1.) Defendants are Universal Fidelity Corporation
("Universal"), a Texas-based debt collector, and Terry W.
Simonds, president and director of Universal. (Id. at 2.)
On July 22, 1998, Plaintiff served first discovery requests on
Motion to Compel [Pl's Mot. Compel] at 1). Defendants served
their responses to Plaintiff's requests to admit on September 8,
1998. (Id.) On November 11, 1998, Defendants responded to
Plaintiff's interrogatories and document requests, and on January
12, 1999, Defendants served amended responses to the document
requests. (Id.) However, Defendants objected to many requests and
refused to provide any documents regarding the net worth, as
defined by fair market value, of Universal or Mr. Simonds. (Id.)
On January 15, 1999, Plaintiff moved to compel Defendants to
answer the requests for admission and interrogatories, as well as
to produce documents, related to the net worth of Universal and
Mr. Simonds. (Id.) These include requests for admission 32, 33,
34, 35, and 36 (concerning Mr. Simonds' net worth),*fn2
interrogatories 8 and 9 (net worth of Defendants, identification
of assets, liabilities and asset transfers), and document
requests 9, 12, 13, 19, 21, 22, 25, 26, and 27 (net worth of
Defendants and Universal's minute book). (Id. at 3-4.)
I. THE MEANING OF NET WORTH UNDER THE FDCPA
The FDCPA provides that debt collectors who fail to comply with
the act are, in the case of class actions,*fn3 liable to all
class members for the lesser of $500,000 or 1% of the net worth
of the debt collector. 15 U.S.C. § 1692k(a)(2)(B) Yet,
nowhere does the FDCPA define the meaning of net worth, a term
for which there is more than one possible definition. Plaintiff
contends that the proper measure of the Defendant Universal's net
worth under the FDCPA is its fair market value. (Pl's Mot. Compel
at 1.) Defendants contend that the appropriate measure of
Universal's net worth is its hook value. (Defendants' Response to
Plaintiff's Motion to Compel [Defs.' Resp.] at 2.) In support of
their argument, Defendants cite Sanders v. Jackson, in which the
term net worth, as used in the FDCPA, was held to mean "the
difference between assets and liabilities as determined in
accordance with generally accepted accounting principles
(GAAP). . . ." 33 F. Supp.2d 693 (N.D.Ill. 1998).
Universal's net worth varies greatly depending on the formula
used to calculate it. Universal's fair market value is
approximately $1,800,000, while its book value is $101,353. Under
the FDCPA, plaintiffs may not recover more than 1% of a
defendant's net worth. 15 U.S.C. § 1692K(a)(2)(B)(ii). Thus,
the maximum recovery is $18,000 if Universal's net worth is its
fair market value and $1,013 if its net worth is its hook value.
A. Standards for Statutory Interpretation
When construing the meaning of a statute enacted by Congress, a
court must first look to the language of that statute. Newsom v.
Friedman, 76 F.3d 813, 816 (7th Cir. 1996) (citing United States
v. Hudspeth, 42 F.3d 1015, 1022 (7th Cir. 1994), cert. denied,
515 U.S. 1105, 115 S.Ct. 2252, 132 L.Ed.2d 260 (1995), "we
may turn to the legislative history to interpret a statute only
when the statute is ambiguous."). If a term is not defined by
statute, a court construes the word in accord with its plain or
ordinary meaning. Smith v. United States, 508 U.S. 223, 228, 113
S.Ct. 2050, 124 L.Ed.2d 138 (1993); see Mace v. Van Ru Credit
Corp., 109 F.3d 338, 342 (7th Cir. 1997) ("divining congressional
intent from an absence of expression is a quagmire that we must
try to avoid."). However, if the plain language of a statute is
ambiguous, a court must turn to the statute's legislative history
in order to determine the intent of the drafters. Crandon v.
United States, 494 U.S. 152, 153, 110 S.Ct. 997, 108 L.Ed.2d 132
(1990) (court will look not only to the statutory language but to
the design of the statute as a whole and to its object and
Since the FDCPA does not define net worth, the Court will first
examine the plain meaning of the term. The Court will then
consider the purpose of the FDCPA.
B. The Plain Meaning of the Term Net Worth
To determine the plain meaning of a word in a statute, the
Seventh Circuit has relied on the dictionary definition thereof.
Bass v. Stolper; Koritzinsky, Brewster & Neider, S.C.
111 F.3d 1322, 1325 (7th Cir. 1997). Black's Law Dictionary defines net
worth as "[t]he amount by which assets exceed liabilities.
Remainder after deduction of liabilities from assets . . . The
total assets of a person or business less the total liabilities."
BLACK'S LAW DICTIONARY, 1041 (6th ed. 1990). Black's defines
assets as "[p]roperty of all kinds, real and personal, tangible
and intangible. . . ." Intangible assets are defined as "[a]ssets
lacking physical existence; e.g. patents, trademarks,
organization costs, goodwill." Id. at 118.
Book value, by contrast, does not account for intangible
assets. As a result, using book value as a valuation formula
results in relatively low estimations of businesses' values.
Judge Posner has explained that
[b]ook value is a virtually meaningless
index. . . . The main component of book
value is the original cost of the firm's
assets, as depreciated. Wholly apart
from the well-known vagaries of depreciation,
if a firm's assets are specialized to
the firm's business, they may have very
little sale value. Their only value may
be to generate the firm's earnings. But
then it is clear that the value of the firm
is some multiple of its earnings, and not
some function of the original cost of its
Beerly v. Dept. of Treasury, 768 F.2d 942, 946 (7th Cir. 1985).
In interpreting the meaning of net worth under the FDCPA's
damages provision, the Sanders court asserted that Congress would
have used the term fair market value instead of net worth if it
had intended the measure of damages to be 1% of a debt
collector's fair market value. Sanders, 33 F. Supp.2d at 696.
However, Congress just as easily could have used the term book
value to cap debt collectors' damages. See 50 App. U.S.C.A. §
32(a)(2)(D) (1988), Trading With the Enemy Act of 1917 (capping
aggregate returns at book value not to exceed $9,000,000);
Merchant Marine Act, 46 App. U.S.C.A. § 883-1(d) (1998),
(limiting aggregate book value of vessels owned by a United
States corporation to 10% for purposes of United States
Thus, the Court turns to the legislative history of the FDCPA
for further guidance as to the meaning of the term net worth.
C. The Purpose of the FDCPA
In enacting the FDCPA, "Congress tipped the balance between
debtor and debt collector to correct what it determined were
abuses in debt collection practices." Newsom, 76F.3d at 816
(citing Jenkins v. Heintz, 25 F.3d 536, 537 (7th Cir. 1994),
aff'd, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995)). The
legislative history of the FDCPA reveals Congress' interest in
protecting "consumers from a host of unfair, harassing and
debt collection practices without imposing unnecessary
restrictions on ethical debt collectors." S.Rep. No. 382, 95th
Cong., 1st Sess. 1-2, 5, reprinted in 1977 in U.S.C.C.A.N. 1695,
The FDCPA protects debt collectors' interests by restricting
the damages recoverable for violations of the act. Damages
recoverable under 15 U.S.C. § 1692k include actual damages,
reasonable attorney's fees, and a discretionary damage award.
15 U.S.C. § 1692k. In class actions, in addition to actual
damages recovered by the named plaintiff, damages may not "exceed
the lesser of $500,000 or 1 per centum of the net worth of the
debt collector."*fn4 15 U.S.C. § 1692k(a)(2)(B). Yet, it is
clear that Congress intended the FDCPA to deter abusive debt
collection practices. The statute's statement of purpose
(a) . . . Abusive debt collection practices
contribute to the number of personal
bankruptcies, to marital instability, to
the loss of jobs, and to invasions of
individual privacy. . . .
(e) It is the purpose of this subchapter
to eliminate abusive debt collection practices
by debt collectors.
15 U.S.C. § 1692(a) & (e). Such abusive practices may include
"threats of violence, use of obscene language, certain contacts
with acquaintances of the consumer, late night phone calls, and
simulated legal process." Bass, 111 F.3d at 1324.
1. FDCPA Damages are Similar to Punitive Damages
Damages for FDCPA violations are punitive in nature. Punitive
damages are intended to deter future misconduct by defendants.
See Brown and Williamson Tobacco Corporation v. Jacobson and CBS,
Inc., 827 F.2d 1119, 1143 (7th Cir. 1987) (finding that damages
of $2,000,000 would "provide some deterrence to future misconduct
and yet will not burden CBS with debt it cannot easily
discharge."). For this reason, a defendant's net worth is an
appropriate consideration in assessing punitive damages. Cash v.
Beltmann North American Company, Inc., 900 F.2d 109, 111 (7th
In Cash, the Seventh Circuit relied on defendant's four-year
old corporate tax return to determine that a punitive damages
award of 8.29 percent of defendant's net worth could be "a
dangerous financial drain" on the defendant. Nevertheless, the
court expressed concern that the tax return, which was four years
old at the time of trial, provided "weak evidence of Beltmann's
true net worth." Id. Evidently, the court's interest was in
ensuring that the damages award reflect the actual economic value
of the defendant. Similarly, FDCPA damages reflect Congress'
interest in encouraging debt collectors to comply with the act,
while capping damages in class actions at 1% of the debt
collector's net worth. 15 U.S.C. § 1692k(a)(2)(B).*fn5
Moreover, like punitive damages, FDCPA damages take into
account the nature of the defendant's conduct. The Senate Report
on the FDCPA states:
In assessing damages, the court must
take into account the nature of the violation,
the degree of willfulness, and the
debt collector's persistence. A debt collector
has no liability, however, if he
violates the act in any manner, including
with regard to the act's coverage, when
such violation is unintentional and occurred
despite procedures designed to
avoid such violations. . . .
S.Rep. No. 382, 95th Cong., 1st Sess. at 5, reprinted in 1977 in
U.S.C.C.A.N. at 1700. In addition, in Kobs v. Arrow Service
Bureau Inc., the Seventh Circuit held that
the FDCPA requires trial by jury in determining statutory damages
additional to plaintiff's actual damages. Kobs v. Arrow Service
Bureau, Inc., 134 F.3d 893
(7th Cir. 1998). The Kobs Court cited
Johnson v. Eaton, 80 F.3d 148
, 151-52 (5th Cir. 1996), in which
the Fifth Circuit considered additional statutory damages under
the FDCPA "punitive in nature." Kobs, 134 F.3d 893
FDCPA damages, like punitive damages, are designed to deter
violation of the law. If damages in class actions were capped at
1% of a debt collector's book value, debt collectors would have
little incentive to comply with the FDCPA because the potential
liability would be so small. Debt collectors could afford to
incur such damages as a mere cost of doing business. However,
assessing damages based on a debt collector's fair market value
is consistent with the FDCPA's purpose of eliminating abusive
debt collection practices without harming ethical debt
2. Sanders v. Jackson
The Court respectfully declines to follow Sanders v. Jackson,
which held that the defendant's net worth under the FDCPA was the
book value of the debt collection company. Sanders, 33 F. Supp.2d
at 696. The Sanders Court relied on Continental Web Press, Inc.
v. NLRB. Id. That case is distinguishable, in this Court's
opinion. Continental Web Press, which dealt with attorneys' fees
under the Equal Access to Justice Act ("EAJA"), relied on the
legislative history of that act to hold that a small business's
eligibility for attorney's fees from the government should be
determined by using the book value of the applicant because the
proceeding to collect these fees "was intended to be summary."
Continental Web Press, Inc. v. NLRB, 767 F.2d 321, 322-23 (7th
However, a summary proceeding to collect attorneys' fees from
the government is not analogous to the calculation of a debt
collector's damages for violating the FDCPA. In an EAJA summary
proceeding, the defendant's ultimate liability is not at issue.
The issue as to whether the government's position was
substantially justified has already been resolved, and the only
remaining question is whether the plaintiff qualifies as a small
business for purposes of receiving attorneys' fees from the
government. In a FDCPA case, by contrast, a court is willing to
delve into the details of a defendant's finances in order to
ensure that the award of damages for violating the act is
appropriate. See Cole v. Commissioner of Internal Revenue, No.
9757-84, 1987 WL 40313 (U.S.Tax Ct. May 4, 1987), aff'd,
871 F.2d 64 (7th Cir. 1989) ("for net worth to properly reflect the
economic value of a business, it must be defined as fair market
value of assets over liabilities.").*fn6
3. Fair Market Value Prevents Damage
Assessments Based on Manipulated
Using hook value as a valuation method for assessing FDCPA
damages poses an additional risk: debt collectors could
artificially lower their liability under the FDCPA by increasing
salaries, declaring dividends, making loans and incurring other
business expenses. However, by defining net worth as fair market
value, courts are able to assess damages based on defendants'
actual net worth, regardless how defendants keep their hooks.
Thus, the Court finds that the meaning of net worth under the
FDCPA is fair market value.
II. MOTION TO COMPEL DISCOVERY
Plaintiff's Motion to Compel Discovery is granted. Defendants
must respond to Plaintiff's requests for admission 32, 33,
34, 35, and 36 (to the extent Defendant Simonds has not already
done so), answer Plaintiff's interrogatories 8 and 9, and produce
documents 9, 12, 13, 19, 21, 22, 25, 26, and 27. Each of these
documents pertains to the net worth of Defendants Universal and
The Court finds that the proper measure of a defendant's net
worth in a FDCPA case is its fair market value. Therefore, the
Court grants Plaintiff's motion to compel discovery of documents
related to Defendants' net worth.