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From Banking and Finance Law Daily, August 21, 2018

Plaintiff must prove debt collector’s net worth in FDCPA class action

By Nicole D. Prysby, J.D.

The plain language of the Fair Debt Collection Practices Act places the burden of proof on the consumer to establish a debt collector’s net worth when seeking an award of class statutory damages, held the U.S. Court of Appeals for the Ninth Circuit. The FDCPA provides for class statutory damages "not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector," but the statute is silent as to who bears the burden of producing evidence of the debt collector’s net worth. The usual rule is that the plaintiff bears the burden on all of the elements of the claim and the language of the statute makes it clear that evidence of the defendant’s net worth is a prerequisite to establishing statutory damages, thus the burden is on the plaintiff, found the court. Congress could have drafted the statute to place the burden on the debt collector, but chose not to do so in the context of the damages cap. And although a debt collector has superior access to its net worth information, it is not uniquely difficult for consumer plaintiffs to acquire a debt collector’s financial information. Therefore, the court affirmed the district court’s dismissal of the consumer’s FDCPA class action for failure to prove the debt collector’s net worth and establish entitlement to class statutory damages (Tourgeman v. Nelson & Kennard, August 20, 2018, Tallman, R.).

Background. The consumer brought a class action under the FDCPA, related to alleged misidentifications in a collection complaint filed against him by a law firm after he defaulted on a loan to purchase a computer. The misidentifications subjected the law firm to strict liability and the sole focus at trial was to be evidence supporting a class award of statutory damages and the law firm’s bona fide error defense. The district court concluded that the consumer bore the burden of demonstrating the defendant’s net worth for purposes of awarding statutory damages under the FDCPA. Because he failed to present competent evidence as to the law firm’s net worth, the district court dismissed his class claim. The consumer appealed.

Plaintiff bears burden of proof as to net worth. Section 1692k(a)(2)(B) of the FDCPA provides for class statutory damages "not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector[.]" However, the statue is silent as to who bears the burden of producing evidence of the debt collector’s net worth. The parties agreed that 1 percent of the law firm’s net worth was less than $500,000. The Ninth Circuit pointed out that the usual rule is that a plaintiff bears the burden on all of the elements of the claim and that the language of the statute makes it clear that evidence of the defendant’s net worth is a prerequisite to establishing statutory damages. If Congress had meant for net worth to be an affirmative defense, it could have written the statute to limit liability to $500,000 unless the defendant could establish that 1 percent of its net worth was less than that amount, but it did not do so. Evidence of the defendant’s net worth is not optional; the plain language of the statute requires it if plaintiffs are to recover anything on their claims.

The court also noted that the structure of the statute also supports a conclusion that Congress did not intend to shift the burden of production to the debt collector. Under § 1692k, the factfinder first determines the defendant’s maximum liability and then determines the amount of liability based on a non-exhaustive list of factors. The court rejected an argument from the consumer that it could skip the determination of maximum liability and proceed directly to the amount of liability.

Exceptions to the general rule. In addition, the two exceptions to liability in the FDCPA provide support for applying the default rule that the plaintiff bears the burden of proof. Specifically, the statute places the burden of proof for the bona fide error defense and safe harbor exception on the debt collector. Because Congress placed the burden of proof on the debt collector in those two instances, it is clear that Congress knew how to shift the burdens of proof under the statute but chose not to do so regarding evidence of net worth. And although the debt collector has superior access to its net worth information compared to the consumer, it is not uniquely difficult for consumer plaintiffs to acquire a debt collector’s financial information. In this case, the consumer received bank statements and deposition testimony concerning the law firm’s financial condition. While placing the burden on the plaintiff might increase litigation costs, create discovery battles, or discourage class actions under the FDCPA, the court was unwilling to rewrite the statute to accommodate those issues.

The case is No. 16-56190.

Attorneys: Brett M. Weaver (Brett M. Weaver, Attorney at Law) for David Tourgeman. Tomio Buck Narita (Simmonds & Narita, LLP) for Nelson & Kennard.

Companies: Nelson & Kennard; Collins Financial Services, Inc. d/b/a Precision Recovery Analytics, Inc.; Collins Financial Services USA, Inc.

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