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Scally v. Hilco Receivables

June 23, 2005

LAURA SCALLY, PLAINTIFF,
v.
HILCO RECEIVABLES, LLC, LAKE COOK PARTNERS, LLC, AND M.R.S. ASSOCIATES, INC., DEFENDANTS.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

Laura Scally filed suit after receiving a collection letter that demanded payment on a defaulted debt. Scally claims that the dunning letter violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. Named as Defendants are Hilco Receivables, LLC ("Hilco"), Lake Cook Partners, LLC ("LCP"), and M.R.S. Associates, Inc. ("MRS"). Defendants Hilco and LCP seek summary judgment, arguing that Scally cannot prove, as required by the statute, that they acted directly or indirectly to collect her debt.*fn1

Section 1692a of the FDCPA provides in part that:

[t]he term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

15 U.S.C. § 1692a(6). Only debt collectors -- not creditors -- are subject to the provisions of the FDCPA. Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003). Assignees of debt already in default at the time of assignment ("bad debt") are considered debt collectors and are subject to the FDCPA. Id. (citing Bailey v. Security Nat'l Servicing Corp., 154 F.3d 384, 387 (7th Cir. 1998)). At first blush, Defendant Hilco falls neatly into this category, as it acquired Scally's debt (like that of many other consumers and to the tune of nearly $1 billion in outstanding debt) after she defaulted. Yet at least in the conventional sense, Hilco did not act directly to collect Scally's debt: Hilco never contacted Scally to collect the debt nor did Hilco mail the allegedly offending collection letter. Rather, Hilco outsourced the activity of debt collection to co-defendant MRS, which mailed the letter that is the basis of Scally's complaint.

At issue is whether Hilco acted indirectly when it contracted with MRS for the collection of Scally's debt. Alternatively, Scally argues that Hilco acted directly to collect her debt when it provided her information to a credit bureau -- an argument I address at the conclusion of this opinion. Scally's primary argument is one of vicarious liability. In response, Hilco denies that it can be held liable for actions undertaken by MRS when MRS functioned as an independent contractor.*fn2

Summary judgment is proper if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322-33 (1986). A genuine issue of material fact exists when there is evidence on the basis of which a reasonable jury could find in the plaintiff's favor, allowing for all reasonable inferences drawn in a light most favorable to the plaintiff. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Scally must offer more than "[c]onclusory allegations, unsupported by specific facts" in order to establish a genuine issue of material fact. Payne v. Pauley, 337 F.3d 767, 773 (7th Cir. 2003) (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990)).

Factual Background

Hilco purchases large amounts of defaulted credit card debt for ten cents on the dollar. For roughly three-quarters of the debt it acquires, Hilco enters into collection agreements with entities unrelated to Hilco or any of its subsidiaries. These entities, which include Defendant MRS, agree to collect or attempt to collect the outstanding debts in return for a contingency fee. In this case, Hilco (through Lake Cook), acquired Scally's bad debt from MBNA Bank. Hilco then referred Scally's account to MRS for collection pursuant to a "Recovery Agreement."

The Recovery Agreement gave MRS:

full and complete authority to take all actions deemed appropriate in the ordinary course of its business including, but not limited to (1) contacting Accountholders (sic), (2) compromising, settling or releasing balances, (3) pursuing arbitration, provided no such arbitration shall be commenced unless HILCO agrees in writing, and (4) using third parties for purposes of skip tracing.

Once an account is referred to MRS, Hilco has little contact with debt-holders. Importantly, Hilco does not initiate any contact with debt-holders. In this case, it did not send any letters to Scally, nor did it contact her by telephone. Both parties agree that MRS sent the allegedly infringing communication at issue in this case to Scally and the other class members.

As part of its collection efforts, MRS asks debt-holders to remit payments directly to MRS. MRS holds all funds collected in a trust account for Hilco and reports collection activities to Hilco on a daily, weekly and monthly basis. Hilco will accept payment from debtors, should they contact Hilco and insist upon doing so. Otherwise, Hilco expects that payments will be made to MRS and that MRS will remit payment to it. MRS has authority to endorse and deposit checks made payable to Hilco (or the original debt-holder) in connection with an account. With respect to settling accounts, MRS is authorized under the terms of the Recovery Agreement to accept eighty percent or more of the amount of debt as payment in full. In order to settle at lower amounts, MRS must secure Hilco's approval.

Hilco makes no effort to govern the content of the communication between MRS and debt-holders beyond the terms outlined in the Recovery Agreement. Within the agreement, MRS promises that all of its customer contact will comply with applicable law and that MRS will only use Hilco's name in its communications with debtors in a manner approved by Hilco. Scally offers no evidence that Hilco inspected the letter MRS sent to her or otherwise authored or approved the content of the letter. On the basis of these facts, I must determine if MRS is an agent of Hilco such that Hilco might be vicariously liable for ...


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