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From Banking and Finance Law Daily, October 16, 2018

A tort is not ‘debt’ under Colorado collection law

By Thomas G. Wolfe, J.D.

A tort, as distinguished from a judgment awarding damages for its commission, is not a "debt" under the Colorado Fair Debt Collection Practices Act (CFDCPA) because it does not obligate the tortfeasor to pay damages and cannot be considered "a transaction giving rise to an obligation to pay money" as contemplated by the CFDCPA, the Supreme Court of Colorado, sitting en banc, has decided. Further, because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, but "merely changes the person to whom the tortfeasor’s obligation to pay is owed," it also is not a transaction creating "debt" under the CFDCPA, the court held. As a result, despite a consumer’s claim that a law firm violated the CFDCPA, Colorado’s high court affirmed the judgment dismissing the consumer’s action (Ybarra v. Greenberg & Sada, P.C., Oct. 15, 2018, Coats, N.).

Notably, amicus curiae briefs were filed in the case by the Colorado Administrator of the Uniform Consumer Credit Code, Colorado Creditor Bar Association, Colorado Legal Services, Colorado Trial Lawyers Association, and National Association of Subrogation Professionals.

Consumer’s complaint. The consumer, Francis Ybarra, brought an action in state court, alleging that the law firm, Greenberg & Sada, P.C., which represented State Farm Auto Insurance Company, violated the CFDCPA by obtaining a judgment against her in Denver County Court. According to the court’s opinion, State Farm was "the subrogee of an insured to whom it had paid a claim for damages caused by Ybarra."

More specifically, the consumer alleged that the law firm violated the CFDCPA by: (i) filing State Farm’s negligence action in Denver rather than in Jefferson County where she resided; (ii) using a false representation or deceptive means in attempting to collect a debt by filing for damages in tort; (iii) listing a certain address for her residence, even though the firm knew or should have known that she did not reside there; (iv) making false representations of the character, amount, or legal status of the purported "debt" by contending that the consumer owned the car she was driving (which the consumer denied); and (v) failing to comply with the Colorado collection law in various other ways.

Legal issue on appeal. The Colorado trial court dismissed the consumer’s CFDCPA claims, and the state’s intermediate appellate court upheld the dismissal. In granting the consumer’s petition to appeal the lower courts’ rulings, the Colorado Supreme Court framed the legal issue on appeal as "whether the insurance subrogation claim Greenberg & Sada helped State Farm to enforce should have qualified as a debt within the contemplation of the Colorado Fair Debt Collection Practices Act and, therefore, whether Ybarra’s complaint alleging violation of the Act by Greenberg & Sada should not have been dismissed for failing to state a claim."

Court’s analysis. A "debt" under the CFDCPA (§5-16-103(8)) refers to "any obligation or alleged obligation of a consumer to pay money arising out of a transaction, whether or not the obligation has been reduced to judgment." The definition does not include a debt for "business, investment, commercial, or agricultural purposes or a debt incurred by a business." As observed by the Colorado Supreme Court, the CFDCPA does not provide further guidance as to what constitutes a "transaction" under the provision. In addition, while the court pointed out noticeable differences between the federal Fair Debt Collection Practices Act and the CFDCPA, the court stressed that the federal and state laws "clearly exclude from the definition of debt any obligation to pay money incurred for many, if not all, non-consumer-related purposes."

For purposes of the subrogated tort claim, the court deemed it unnecessary to "definitively decide" whether amendments to the CFDCPA, limiting the purposes for which an obligation constitutes a debt, have effectively limited the term "transaction" solely to consumer transactions, as suggested by the intermediate appellate court. Instead, from the Colorado Supreme Court’s perspective, it was enough to determine that "a tort, at the very least, cannot be a transaction capable of giving rise to an obligation to pay money at all," and that a subrogated tort claim "is at least not a transaction giving rise to an obligation of the tortfeasor to pay money."

Moreover, while distinguishing between tort obligations, which impose duties by law, and contract obligations, which arise from transactional agreements, the court emphasized that subrogation, rather than creating an obligation, is "merely an assignment of claims or rights, substituting one claim holder for another." Consequently, the court asserted that the pertinent subrogation contract in the case "did not convert the original tort claim of the victim to a debt, and the law firm seeking to have that tort claim reduced to a judgment on behalf of State Farm did not find itself in the role of debt collector within the contemplation of the Act."

The case is No. 16S721 (2018 CO 81).

Attorneys: Daniel Vedra and Katherine Russell (Vedra Law LLC) for Francis Ybarra. Alan Greenberg (Greenberg & Sada, P.C.) for Greenberg & Sada, P.C. Cynthia H. Coffman, Colorado Attorney General, Frederick R. Yarger, Colorado Solicitor General, and Nikolai N. Frant, Senior Assistant Colorado Attorney General as amicus curiae for the Colorado Administrator of the Uniform Consumer Credit Code. Jamie G. Siler, James Eckels, and Kimberly L. Martinez (Murr Siler & Accomazzo, P.C.) as amicus curiae for the Colorado Creditor Bar Association. Paul Chessin as amicus curiae for Colorado Legal Services. Ross W. Pulkrabek (Keating Wagner Polidori Free, P.C.) as amicus curiae for the Colorado Trial Lawyers Association. Jennifer A. Poynter (Poynter Law LLC) and Irvin Borenstein (Borenstein Associates LLC) as amicus curiae for the National Association of Subrogation Professionals.

Companies: Greenberg & Sada, P.C.; State Farm Auto Insurance Company

MainStory: TopStory ColoradoNews ConsumerCredit DebtCollection StateBankingLaws UDAAP

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