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Sixth Circuit Dismisses FDCPA Claims for Lack of Article III Standing

Holding that “Congress cannot override [the] baseline requirement of Article III of the U.S. Constitution by labeling the violation of any requirement of a statute a cognizable injury,” the U.S. Court of Appeals for the Sixth Circuit has ordered dismissal of an FDCPA suit predicated upon a letter’s lack of a “mini-Miranda” warning for lack of a concrete harm.

In Hagy v. Demers & Adams, James and Patricia Hagy incurred, and later defaulted, on a debt they incurred to purchase a mobile home and property on which to park it. After their lender initiated foreclosure proceedings they contacted the lender’s lawyers, Demers & Adams, to try to settle the matter.  Demers sent the Hagys a letter stating: “In return for [the Hagys] executing the Deed, Green Tree has advised me that it will waive any deficiency balance.” The Hagys executed the Deed, and six days later Demers sent a letter to the Hagys’ attorney, confirming receipt of the executed Deed and stating that “Green Tree will not attempt to collect any deficiency balance which may be due and owing after the sale of the collateral.”  Three weeks later, Green Tree dismissed its foreclosure complaint.

Notwithstanding these assurances, Green Tree later began calling the Hagys to collect the debt. When James Hagy protested that he “didn’t have to pay anything else” in light of the deed, Green Tree recognized its mistake and agreed that the Hagys owed nothing more.  The following year the Hagys sued Green Tree, one of its employees, Demers, and his law firm alleging various violations of the Fair Debt Collection Practices Act and the Ohio Consumer Sales Practices Act.  As to Demers and his law firm specifically, the Hagys complained, among other things, that Demers’ letter to the Hagys’ counsel failed to disclose that it was a communication from a debt collector in violation of 15 U.S.C. § 1692e(11).

Eventually, the district court granted summary judgment for the Hagys because Demers’ letter to the Hagys’ attorney failed to disclose that it was a “communication from a debt collector (in violation of Section 1692e(11) of the FDCPA.  Believing that the Ohio law incorporates the requirements of the FDCPA, the district court also held that Demers had violated the Ohio statute by failing to provide the mini-Miranda warning in both letters and by failing to provide the Hagys with a validation notice as required by Section 1692g(a) of the FDCPA.  The district court awarded the Hagys $1,800 in statutory damages, $312 in costs, and $74,196 in attorney’s fees against Demers and his law firm.

Rather than adjudicating the merits of the appeal, the Sixth Circuit instead focused its attention on the requirements of standing and subject matter jurisdiction under Article III of the Constitution, as addressed by the Supreme Court in Spokeo, Inc. v. Robins.  Noting that the Hagys had alleged and proven both a statutory duty and a breach of that duty, the court of appeals nevertheless recognized that Article III requires more – it requires a concrete injury suffered by the plaintiffs.  The court recognized that Demers’ challenge was not to Congress’ authority to create a cause of action, but to create a statutory injury that involves “no harm of any sort that could satisfy the injury-in-fact requirements of Article III.”  The court observed:

Far from causing the Hagys any injury, tangible or intangible, the June 30 letter gave them peace of mind, and they have never testified otherwise. At this point in the case, no one plausibly argues (or even alleges) that the Hagys suffered an actual injury and damages from the letter. Demers had nothing to do with the true source of their anxiety—Green Tree’s phone calls seeking to collect the deficiency weeks after the Hagys executed the Deed, which could be injury-causing.

Under these circumstances, the only potential source of Article III jurisdiction would be if Congress’ creation of a statutory injury, and a right to statutory damages, “suffices to satisfy Article III’s standing imperative.” The court of  appeals concluded that it did not.  Although Congress created the cause of action and statutory injury applicable to the conduct at issue, Spokeo requires proof of injury-in-fact by pointing to some harm other than the fact of a bare procedural violation, as not all such violations, “not even all inaccuracies, cause real harm.”

The Sixth Circuit found that the Hagys did not show, or even try to show, that the mini-Miranda violation caused them any actual harm beyond a bare procedural violation. They did not assert that the nondisclosure created a risk of double payment, caused anxiety, or led to any other concrete harm.

On this record, it is difficult to see—and we cannot see—how the June 30 letter did anything other than help the Hagys. When Green Tree came calling, in point of fact, James Hagy relied on the June 30 letter to refuse to pay the deficiency balance. The letter was good news when it arrived, and it became especially good news when Green Tree persisted in trying to collect a no-longer-collectible debt.

Debt collectors may cheer the Sixth Circuit’s dismissal of the Hagys’ claims as a larger win for the industry, and perhaps it is, in light of the Court’s Spokeo-based conclusion that:

We know of no circuit court decision since Spokeo that endorses an anything-hurts-so-long-as-Congress-says-it-hurts theory of Article III injury. Although Congress may “elevate” harms that “exist” in the real world before Congress recognized them to actionable legal status, it may not simply enact an injury into existence, using its lawmaking power to transform something that is not remotely harmful into something that is.