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From Banking and Finance Law Daily, November 4, 2013

Filing of state collection suit did not violate FDCPA’s venue provision

By Thomas G. Wolfe, J.D.

Even though a debt collector filed a lawsuit against a consumer in a small claims court in an Indiana township other than the township in which the consumer resided or signed a contract related to the underlying debt, the U.S. Court of Appeals for the Seventh Circuit held that the debt collector did not violate the federal Fair Debt Collection Practices Act (FDCPA) because the collection suit was still filed within the proper “judicial district” under the venue provision of the FDCPA. As a result, the Seventh Circuit affirmed the dismissal of the consumer’s FDCPA claim (Suesz v. Med-1 Solutions, LLC, Oct. 31, 2013, Flaum, Circuit Judge).

Background. In keeping with its business of buying delinquent debts, Med-1 Solutions, LLC, purchased the consumer’s debt for health care services from an Indianapolis hospital. In March 2012, the company filed a lawsuit against the consumer in Pike Township small claims court in Indiana. Ultimately, the debt collector, Med-1 Solutions, obtained a judgment against the consumer for $1,280.

The consumer then filed his own, separate lawsuit—a proposed class action—in the U.S. District Court for the Southern District of Indiana, claiming that the debt collector’s state collection action in Pike Township small claims court violated the FDCPA’s venue provision. The consumer contended that the collector typically conducted this type of “forum shopping” by filing claims in Pike Township even though the consumer resided in, and the debt was incurred at the hospital in, Lawrence Township. Both Pike Township and Lawrence Township are within Marion County, Indiana.

As previously reported in the March 25, 2013, issue of Banking and Finance Law Daily, the federal district court granted the debt collector’s motion to dismiss the consumer’s FDCPA lawsuit. The lower court ruled that the FDCPA venue provision was not violated because although the Pike Township small claims court was not itself a “judicial district” under the FDCPA provision, the township still was an “administrative subset” within the proper judicial district of Marion County Circuit Court as a whole. The consumer appealed that decision to the Seventh Circuit.

FDCPA venue provision. The venue provision of the FDCPA (15 U.S.C. §1692i) states that a debt collector must bring an action to collect a debt “only in the judicial district or similar legal entity in which such consumer signed the contract sued upon; or in which such consumer resides at the commencement of the action.”

In reviewing the FDCPA venue provision, the federal appellate court observed that the FDCPA does not furnish a definition of “judicial district.” Instead, the Seventh Circuit focused on the Black’s Law Dictionary definition of the term, its prior decision in Newsom v. Friedman (76 F3d 813, 7th Cir. 1996), and a 2011 Second Circuit decision for further guidance.

Seventh Circuit’s analysis. The court noted that the main policy consideration behind the FDCPA venue provision is to punish the unfair practice of filing collection actions against consumers in “distant or inconvenient forums that can make it difficult for debtors to appear.”

The Seventh Circuit emphasized that “debt collectors almost always bring collection actions in state courts, and the specifics of state judicial structures differ.” Consequently, the court determined that the FDCPA provision (Sec. 1692i) required a review of Indiana’s state’s judicial structure as a whole.

In reviewing the Indiana court system, the Seventh Circuit determined that: (i) with the exception of one circuit, the circuit courts are divided along county lines; (ii) the township courts within Marion County have original and concurrent jurisdiction over civil contract and tort actions up to $6,000; (iii) the Marion County township courts have countywide jurisdiction, and “litigants are free to file small claims cases in any of the townships in the county”; and (iv) the township courts are not courts of record, claims may not be tried to a jury, and the circuit judge may transfer cases from one township to another.

As a result, the Seventh Circuit agreed with the federal trial court that the Indiana township courts could not be considered freestanding “judicial districts” under the FDCPA. In the Seventh Circuit’s view, the township courts fell short of that designation because, among other things: (i) “the limitations on their authority are not coterminous with township boundaries;” (ii) the pertinent Indiana statute permits debt collectors to file actions anywhere in the county, “rather than limiting the township courts’ reach” to township borders; and (iii) the “filing flexibility suggests that the proper judicial district is Marion County as a whole, rather than the individual townships.”

Posner’s dissent. In his dissenting opinion, Justice Posner acknowledged that while the majority “understandably” relied heavily on the Seventh Circuit’s prior decision in Newsom, he considered that opinion to be “unsound and should be overruled.” The dissent emphasized the FDCPA’s overarching objective of consumer protection, and asserted that “Section 1692i says in effect: debt collector, you must sue in the court most convenient to the debtor. The court in Newsom failed to put two and two together.”

The case is No. 13-1821.

Attorneys: Cathleen M. Combs (Edelman Combs Latturner & Goodwin) for plaintiff Mark Suesz. Peter A. Velde (Kightlinger & Gray LLP) for defendant Med-1 Solutions, LLC

Companies: Med-1 Solutions, LLC

MainStory: TopStory ConsumerCredit DebtCollection IllinoisNews IndianaNews WisconsinNews

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