Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 00430-Charles R. Norgle, Sr., Judge.
The opinion of the court was delivered by: Manion, Circuit Judge.
ARGUED SEPTEMBER 30, 2010
Before FLAUM, MANION, and TINDER, Circuit Judges.
Michael O'Rourke had a large outstanding balance on his credit card. Over the years, the unpaid debt was sold to several debt collectors and finally to Palisades Acquisition XVI. It sought but failed to collect on the debt and eventually sued O'Rourke in state court. Attached to the complaint was an exhibit that closely resembled a credit card statement listing the balance he owed and placing Palisades in the place of the issuer. O'Rourke sued in federal court claiming that the attachment violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("the Act"). Unlike most lawsuits under the Act, he claimed that the attachment was actionable because it was meant to mislead the state court judge. The district court granted summary judgment for Palisades and O'Rourke appeals. The Act regulates communications directed at the consumer; since it does not extend to communications that are allegedly meant to mislead the judge in a state court action, we affirm.
In 2001, O'Rourke owed several thousand dollars on his Citibank credit card but, for reasons unknown, he never paid the bill. Over time, he mistakenly assumed that the debt was barred by the statute of limitations. Then one day he received a collection notice from a law firm representing the debt's new owner, Palisades. He ignored it. Several months later, he received a summons and complaint with some exhibits attached. One of the exhibits was a statement that looked like a credit card bill, complete with a statement closing date several months before the complaint was filed, and it listed Palisades as the issuing party. Despite looking authentic, it was not an actual copy of a credit card statement. And Palisades admits that it never sent the statement to O'Rourke before filing the suit.
O'Rourke eventually hired a lawyer, and on the day of trial, Palisades voluntarily dismissed the case. After Palisades dismissed its suit, O'Rourke sued it in federal court claiming that the exhibit violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692. Unlike most cases filed under the Act, O'Rourke doesn't claim that the statement was materially deceptive to him or to the unsophisticated consumer. Instead, he claims that the statement is materially false, deceptive, and misleading to a state court judge, specifically one who is viewing it in the context of granting a default judgment.
O'Rourke frames his argument around the over-burdened court system in Cook County, Illinois, the problems inherent in the debt collection business, and Palisades's chicanery. He claims that in Cook County- where Palisades filed its complaint-there are over 100,000 contract-claim cases filed every year, where parties sue over bad debts. This massive volume of cases is divided between seven full-time judges, giving each over 14,000 of these cases a year, with most of them being resolved by default judgments. A judgment, of course, changes the nature of the obligation; the debt collector can now create a judgment lien on real estate, and enable other collection methods, including garnishing the debtor's wages.
Debt collectors who work on very thin profit margins rely on these default judgments for two reasons. The first is that it is too expensive to actually litigate the case, especially when the debt is relatively small and previous collection efforts have failed. So, when a party actually defends against the suit, the debt collector simply dismisses the suit-Palisades did precisely this with O'Rourke. The second reason is that they cannot always establish the debt. Like the current mortgage problem that dominates the headlines, these debts are packaged from the original owner and sold to debt collectors in a portfolio; if the portfolio is large enough, sometimes it's split among several debt collectors. And sometimes, the debt is packaged again and sold to a second or third debt collector-Palisades was the fourth successive assignee of O'Rourke's debt. This poses difficulties for everyone. The packaging and re-packaging of the debt can keep the debt collector from ever being able to verify the original debt. It can also affect the debtor: as in this case, the same debt is sold to multiple parties with each attempting to collect on it, sometimes at the same time. Thus, with the costs of litigation and the difficulties establishing the debt, when a debt collector cannot get payment through phone calls and letters and it has to go to court, the debt collector will often rely on default judgments as the last resort.
In most cases when a defendant fails to appear and answer the allegations in a properly pleaded complaint, those allegations are deemed admitted and default judgment is entered for the plaintiff. But the Illinois Rules of Civil Procedure also provide that even in the event the defendant fails to appear and plead, "the court may in either case, require proof of the allegations of the pleadings upon which relief is sought." 735 ILCS 5/2-1301(d). Although it is unclear how often courts exercise their discretion and require proof of the allegations in the complaint, it does happen. E.g., Universal Cas. Co. v. Lopez, 876 N.E.2d 273, 278 (Ill. App. Ct. 2007); Colonial Penn Ins. Co. v. Tachibana, 369 N.E.2d 177, 179 (Ill. App. Ct. 1977).
Naturally, with the difficulties outlined above, debt collectors want to avoid having to prove their damages to the court, so they attempt to fully establish all the facts with the complaint and the exhibits. In Illinois, one way that a plaintiff can establish a debt is through the account-stated theory or method. Under that method, when a party receives a bill or account statement and does not object to it within a reasonable time, the bill or statement serves as evidence of both an agreement to pay and the account's accuracy. Delta Consulting Grp, Inc. v. R. Randle Constr., Inc., 554 F.3d 1133, 1138 (7th Cir. 2009) (citing W.E. Erickson, Constr., Inc. v. Congress-Kenilworth Corp., 477 N.E.2d 513, 520 (1985)).
With this understanding, the statement attached to the complaint in this case takes on an added significance. It explains why the statement would be dated for six months before the complaint was filed and why it was, in fact, never sent to O'Rourke: Palisades apparently wanted to give the judge the impression that O'Rourke had received the statement and never objected. Thus, a judge who examines the complaint and the attached statement trusting it to be authentic would believe that there is no reason to exercise his discretion and require additional proof of the debt.
While this reflects negatively on Palisades's debt-collection practices, the question is not whether this dubious method is an acceptable means of practicing law. Nor is the question whether the attached statement would have misled the unsophisticated consumer. Rather, the question O'Rourke presents is whether this statement, which O'Rourke alleges was meant to deceive the state court judge, is actionable under the Act. No other question was ...