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Gonzalez v. Cullimore

Supreme Court of Utah

February 26, 2018

Tamera Gonzalez, Sebastian Gonzalez, and Maria Antonieta Gujardo, Appellants,
Kirk Cullimore, Jr.; The Law Offices of Kirk A. Cullimore, Appellees. Pemberley at Robinson's Grove Condominium Unit Owners Association, Plaintiff,
Tamera Gonzalez, Defendant.

         On Direct Appeal Fourth District, American Fork The Honorable Thomas Low No. 100100829

          Brian W. Steffensen, Salt Lake City, for appellants

          Kirk Cullimore, Derek J. Barclay, Kirk A. Cullimore, Jr., Sandy, for appellee

          Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice, Justice Himonas, Justice Pearce and Judge Hyde joined.

          Due to her retirement, Justice Durham did not participate herein; and District Court Judge Noel S. Hyde sat.

          Justice Petersen became a member of the Court on November 17, 2017, after oral argument in this matter, and accordingly did not participate.


          Durrant, Chief Justice


         ¶ 1 Tamara Gonzalez, an owner of a condominium unit within Pemberley at Robinson's Grove Condominium Unit Owners Association (Association), allegedly fell behind on paying her Association assessment fees. The Association hired a law firm to collect on the delinquent fees. The firm sent demand letters to Ms. Gonzalez, who upon receipt of the letters, claimed that the letters misrepresented the amount she actually owed. When negotiations between the Association and Ms. Gonzalez fell through, the Association again contacted the law firm for collection services, and the firm subsequently filed a lawsuit against Ms. Gonzalez on behalf of the Association. After several years of proceedings, Ms. Gonzalez brought a counterclaim against the law firm, asserting, in addition to other claims, that the law firm had violated § 1692e of the Fair Debt Collection Practices Act (FDCPA)[1] by misrepresenting the character, amount, and legal status of the debt she owed in the law firm's demand letters and in its complaint.

         ¶ 2 The law firm brought a motion for summary judgment on the counterclaims and the trial court granted the motion in part, dismissing Ms. Gonzalez's § 1692e counterclaims. In support of its dismissal, the court relied on a Utah Court of Appeals decision, Midland Funding LLC v. Sotolongo, [2] which held that the FDCPA was not a strict liability statute and that a debt collector may rely on its client's representations of the amount of the debt owed without incurring FDCPA liability. The district court held, pursuant to Midland Funding, that the law firm relied on the Association's representation and so was not liable under § 1692e of the FDCPA.

         ¶ 3 Ms. Gonzalez appeals the district court's dismissal of her § 1692e claims and also contends that we should abrogate the holding in Midland Funding. She argues that the Midland Funding court applied the wrong standard for evaluating § 1692e claims. She further argues that her § 1692e claims should be evaluated under a strict liability standard (a standard in which a debtor is not required to show that a debt collector intended or had knowledge that it was misrepresenting the character or amount of the debt) and that the district court was therefore wrong in dismissing her claims merely because the law firm produced evidence showing that it had relied on the representations it had received from the Association. Ms. Gonzalez asks this court to overturn Midland Funding and to reverse the district court's partial grant of summary judgment.

         ¶ 4 We hold that the court of appeals erred in the standard it applied to § 1692e claims and accordingly abrogate Midland Funding. Not only does Midland Funding misstate the Ninth Circuit Court of Appeals' standard for § 1692e claims, but the standard set forth in Midland Funding clearly contradicts the language of the FDCPA. Additionally, a strict liability interpretation of § 1692e is consistent with § 1692k(c) of the FDCPA. That section creates an affirmative defense to strict liability for "bona fide errors"-those errors that are unintentional and not preventable by procedures the debt collector should have in place to check the accuracy of representations made to it by clients. Reading a scienter requirement into § 1692e, as Midland Funding suggests, would render § 1692k(c) superfluous-an action we should avoid. We accordingly follow the overwhelming majority of courts and hold § 1692e claims to a strict liability standard.[3]

         ¶ 5 Even under a strict liability standard, however, a plaintiff is still required to make a threshold showing that a misrepresentation occurred under the FDCPA. And, because the law firm was the moving party on summary judgment in this case, it bore the initial burden of showing that it did not engage in an act prohibited by the FDCPA-or, in other words, that there is no genuine issue of material fact as to its claims that it made no false representation of the character, amount, or legal status of Ms. Gonzalez's debt. Yet the district court failed to determine whether the law firm had met its initial burden. We therefore remand the case to the district court to make such determination.


         ¶ 6 Tamara Gonzalez purchased a condominium unit in 2006 located within Pemberley at Robinson's Grove in Pleasant Grove, Utah. She purchased her unit subject to a validly recorded Declaration of Condominium, a document containing certain covenants, conditions, and restrictions on the property, one of which required the payment of monthly assessments to cover maintenance and services provided by the Condominium Unit Owners Association. The Declaration also provided that a unit owner would be liable to the Association for late payment fees, interest, and cost incurred in collecting on delinquencies of such assessments, including reasonable attorney fees. Sometime in 2009, Ms. Gonzalez allegedly fell behind on her assessment payments. In November 2009, the Association hired the Law Office of Kirk A. Cullimore (the Cullimore firm) to collect on Ms. Gonzalez's delinquent assessments. At the time the Cullimore firm was hired, Sam Bell, an attorney for the Cullimore firm, reviewed the Association's ledger to see if Ms. Gonzalez was in arrears. Shortly thereafter, the Cullimore firm sent Ms. Gonzalez demand letters, notifying her that her account with the Association was in arrears and demanding payment. The Cullimore firm also recorded a lien on her unit, pursuant to the Declaration. After receiving these letters, Ms. Gonzalez contacted the Cullimore firm and the Association by phone and disputed the amount of the debt represented by the Cullimore firm. Thereafter, Ms. Gonzalez and the Association entered an oral payment agreement, but the agreement soon fell apart.

         ¶ 7 In January 2010, the Association again hired the Cullimore firm to commence collection proceedings on Ms. Gonzalez's delinquent fees. Mr. Bell, who was still working for the Cullimore firm, again checked the Association's ledger to confirm that Ms. Gonzalez's account with the Association was delinquent. The Cullimore firm then filed a lawsuit on behalf of the Association on March 12, 2010. Ms. Gonzalez failed to file an answer within the prescribed time and a default judgment order was entered against her on March 14, 2011. Mr. Bell thereafter left the Cullimore firm and started SEB Legal, LLC. The Association transferred its business, including Ms. Gonzalez's collection lawsuit, to SEB Legal, who represented the Association through the rest of its litigation.

         ¶ 8 After two years of negotiations and proceedings, the parties eventually stipulated to setting aside the original default judgment against Ms. Gonzalez. The district court set aside the judgment and granted Ms. Gonzalez leave to answer and make counterclaims. Ms. Gonzalez filed her answer and counterclaim on December 15, 2013, asserting claims under the FDCPA against the Law Office of Kirk A. Cullimore and Kirk A. Cullimore, Jr. (collectively, Cullimore) and SEB Legal, LLC, Sam Bell, and Jayln Peterson (collectively, SEB). Ms. Gonzalez's counterclaim included, among others, claims under § 1692e of the FDCPA for false representation of the character, amount, and legal status of the debt she owed. Specifically, Ms. Gonzalez argued that SEB and Cullimore had falsely represented the amount she owed the Association in the demand letters she received and in the lawsuit commenced against her. She also asserted that both law firms continued to falsely represent the amount and character of the debt she owed throughout the course of litigation. Ms. Gonzalez attached to her counterclaim a detailed accounting of the assessment payments she owed and those she paid during the years of 2009 to 2013. She also attached a verification statement, in which she swore, under penalty of perjury, that the factual allegations within her counterclaim were true and that she did not owe the amount claimed by the Association, SEB, or Cullimore.

         ¶ 9 Both SEB and Cullimore filed motions for summary judgment seeking to dismiss Ms. Gonzalez's § 1962e counterclaims. In support of these motions, the law firms provided the court with the Association's ledger on Ms. Gonzalez's account, a copy of the Declaration, Ms. Gonzalez's warranty deed, and an affidavit signed by Mr. Bell stating that he had verified Ms. Gonzalez's arrearage on the Association's ledger when Cullimore initially received her file from the Association in November 2009, and again in January 2010, before Cullimore filed suit against Ms. Gonzalez with the district court. Ms. Gonzalez filed memoranda in opposition to these summary judgment motions and provided the court, through reference to her counterclaim, with a detailed spreadsheet illustrating the payments she allegedly had made to the Association from 2009 to 2013, her calculated delinquency for each month, as well as a sworn statement from Ms. Gonzalez affirming that the facts alleged in the counterclaim were true and that she did not owe the purported amount.

         ¶ 10 The trial court granted both motions in part and dismissed Ms. Gonzalez's § 1692e claims, leaving her other claims intact. Before the court ruled on Cullimore's motion, but after it had dismissed Ms. Gonzalez's § 1692e claims against SEB, Ms. Gonzalez moved the court to reconsider its order on SEB's motion, but the court issued an order refusing to do so. In all three orders from the district court- the order on SEB's summary judgment motion, the order on Cullimore's summary judgment motion, and the order denying reconsideration of its ruling on SEB's summary judgment motion- the court held Ms. Gonzalez was precluded from bringing her § 1692e claims against Cullimore and SEB by Midland Funding LLC v. Sotolongo, [4] a Utah Court of Appeals decision, because SEB and Cullimore had reasonably relied on the Association's representation of the character and amount of debt Ms. Gonzalez allegedly owed.

         ¶ 11 After the district court denied Ms. Gonzalez's motion to reconsider, Ms. Gonzalez entered into a settlement agreement with SEB and the Association. She therefore did not seek reversal of the district court's order on SEB's motion or the order denying reconsideration of the court's ruling on SEB's motion. Instead, Ms. Gonzalez timely appealed the court's order granting in part Cullimore's motion for summary judgment.[5] On appeal, Ms. Gonzalez argues that Cullimore falsely represented the amount of debt Ms. Gonzalez owed to the Association in its demand letters and in the complaint Cullimore filed. Ms. Gonzalez also argues that Cullimore improperly sought assessment fees altogether because the Association allegedly failed to follow all legal requirements in assessing the fees.

         ¶ 12 We have jurisdiction to hear this case pursuant to Utah Code section 78A-3-102(3)(b).[6]

         Standard of Review

         ¶ 13 Ms. Gonzalez raises two intertwined issues on appeal: first, whether the court of appeals' decision in Midland Funding applied the wrong standard in evaluating § 1692e claims, and second, whether the district court erred in granting summary judgment dismissing Ms. Gonzalez's § 1692e claims. This court is not, of course, bound by prior decisions of the court of appeals.[7]Additionally, we "review a district court's legal conclusions and ultimate grant or denial of summary judgment for correctness, viewing the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party."[8] "Summary judgment is appropriate when 'there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'"[9]


         ¶ 14 The purpose of the FDCPA[10] is to "eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses."[11]The heart of the FDCPA-§ 1692e-prohibits debt collectors from using "any false, deceptive, or misleading representations or means in connection with the collection of any debt."[12] Specifically, § 1692e provides that a debt collector is liable when it makes "false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt."[13]

         ¶ 15 In her counterclaim, Ms. Gonzalez asserted that Cullimore violated § 1692e by making a "false representation of the character, amount, and legal status" of her debt in its demand letters and in Cullimore's complaint. Cullimore argued, and the district court agreed, that it was not liable under § 1692e because it had relied on representations from the Association as to the character, legal status, and amount owed and simply relayed this information to Ms. Gonzalez. In its ruling and order on Cullimore's summary judgment motion, the district court implicitly concluded, by relying on Midland Funding LLC v. Sotolongo, [14] that § 1692e was not a strict liability statute.[15] Accordingly, the district court reasoned that because Cullimore "rel[ied] on its client's representation as to the amount of the debt, " and Ms. Gonzalez could not show that Cullimore had knowledge that the Association's representations to it were false, it was not subject to liability under the FDCPA.

         ¶ 16 Cullimore argues on appeal that the district court's interpretation of § 1692e is correct and precludes liability in this case. Conversely, Ms. Gonzalez argues that her § 1692e claims were improperly dismissed by the district court because the court relied on the incorrect analysis in Midland Funding. Ms. Gonzalez asserts that § 1692e establishes a strict liability standard that does not require a showing of intent, knowledge, or negligence, and that mere reliance on a client's representation does not automatically preclude liability under § 1692e. We agree with Ms. Gonzalez and, because the standard set forth in Midland Funding is incorrect, we abrogate it. We further remand this case to the district court to consider whether there is a genuine issue of material fact as to whether Cullimore made a false representation of the amount, character, or status of the debt Ms. Gonzalez allegedly owed.

         I. The Court of Appeals' Holding in Midland Funding is Incorrect Because § 1692e is a Strict Liability Provision

         ¶ 17 Cullimore argues that the district court correctly dismissed Ms. Gonzalez's § 1692e counterclaims because, as the court of appeals concluded in Midland Funding LLC v. Sotolongo, [16] the FDCPA is not a strict liability statute. According to Cullimore, "to maintain a claim for misstating the amount of debt" under § 1692e of the FDCPA, "a debtor must show that the debt collector knowingly misrepresented the amount of the debt." Cullimore argues that the district court correctly held that "a debt collector may rely on its client's representations as to the amount of debt" without violating the statute and has no duty to "independently investigate the amount owed." In other words, Cullimore contends, and the district court agreed, that under Midland Funding a consumer cannot make a successful § 1692e claim when the debt collector merely relays the creditor's representation of the amount owed to the consumer, even when the consumer adamantly denies the amount owed. This conclusion is wrong and stems from the Midland Funding court's (1) incorrect application of caselaw and (2) incorrect reading of the FDCPA. We therefore overturn Midland Funding on these two bases.

         A. The Midland Funding Court Incorrectly Relied on Clark, Which Held the Opposite of Midland Funding, and Bleich, Which Confused the Correct Standard Under § 1692e

         ¶ 18 We first abrogate Midland Funding because the court of appeals incorrectly based its holding on Clark v. Capital Credit & Collection Services, Inc., [17] which actually stands for a proposition directly opposite to the one adopted by the Midland Funding court. In Midland Funding, the Utah Court of Appeals assessed a consumer's § 1692e claim that a debt collector misrepresented the amount of debt the consumer owed.[18] The court cited Clark for the assertion that, under § 1692e, "[a] debt collector may rely on its client's representations as to the amount of the debt" without violating the statute.[19] The Midland Funding court also concluded that "Clark . . . clearly holds that debt verification involves 'nothing more' than confirming in writing the amount owed with the creditor and that the FDCPA imposes no duty on a debt collector to independently investigate the claimed debt."[20] The Midland Funding court therefore concluded that any § 1692e claim asserting that the debt collector unreasonably relied on the creditor's representation, even absent further proof of intent or knowledge of the misrepresentation on the part of the debt collector, "is foreclosed by Clark."[21]

         ¶ 19 The Midland Funding court misconstrued Clark. While each of the assertions the Utah Court of Appeals cited above came from the Clark opinion, the Ninth Circuit made such statements solely in reference to claims brought under § 1692g of the FDCPA, as opposed to § 1692e-the provision in dispute in Midland Funding.[22] This is an important distinction. Section 1692g of the FDCPA deals with the "[v]alidation of debts, " requiring a debt collector to follow specific notice provisions when initially communicating the debt to the consumer, and, upon written request of the consumer, to "obtain verification of the debt or a copy of a judgment" from the creditor and mail such verification or judgment to the consumer.[23] Section 1692e, on the other hand, deals with "any false, deceptive, or misleading representation[s] . . . in connection with the collection of any debt"-not notice procedures and debt verification requests.[24]

         ¶ 20 In Clark, the Ninth Circuit responded to one of the plaintiffs' arguments that defendants had "failed to verify properly the alleged debt, violating § 1692g."[25] Specifically, plaintiffs asked the Ninth Circuit to hold that a debt collector's duty to verify the debt under § 1692g also requires a debt collector to carefully review the creditor's representation of the balance, track the transactions that have occurred between the creditor and debtor in the past, and verify that the balance is still unpaid.[26] The Ninth Circuit refused to establish such a "high threshold" under § 1692g, and instead chose to adopt a more "reasonable standard."[27] In doing so, the Clark court held that, "[a]t the minimum, 'verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed.'"[28] Because the debt collectors in Clark, upon written request for verification by the plaintiffs, "obtained information from [the creditor] about the nature and balance of the outstanding bill and provided the [plaintiffs] with documentary evidence in the form of an itemized statement, " the Clark court held the debt collectors "were entitled to rely on their client's statements to verify the debt . . . and they did not violate §§ 1692g(a)(4) or 1692g(b)."[29] But none of the assertions the Midland Funding court credited to Clark dealt with § 1692e. Rather, the "reasonable standard" the Clark court established-and the Midland Funding court adopted-was intended to apply only to debt verification under § 1692g.

         ¶ 21 The very next section in Clark further supports this notion. Immediately after setting forth a debt collector's duty under § 1692g, the Ninth Circuit evaluated a § 1692e claim, noting that "[w]hether a violation of § 1692e may be predicated upon conduct that is neither knowing nor intentional appears to be an issue of first impression in the Ninth Circuit."[30] The Clark court then went on to expressly agree with the Seventh and Second Circuits that "§ 1692e applies even when a false representation was unintentional."[31] While the Clark court noted that a few courts had "[e]xamined [§ 1692e] in isolation" and concluded that "[t]o successfully state a claim pursuant to § 1692e(2), [the plaintiff] must show that [the debt collector] knowingly or intentionally misrepresented the amount of the debt in its collection letters, "[32] it decided to follow the majority of jurisdictions and held that the FDCPA's "broad language seems to make FDCPA a strict liability statute."[33] Yet the Midland Funding court concluded that Clark expressly required knowledge or intent to bring a § 1692e claim. Thus, the Midland Funding court fundamentally misconstrued Clark.

         ¶ 22 Also, the Midland Funding court relied on a second source that, unlike Clark, did incorrectly apply § 1692g's standard to § 1692e claims. In Midland Funding, the court stated that an "allegation that the debt is invalid, standing alone, cannot form the basis of a lawsuit alleging fraudulent or deceptive practices in connection with the collection of a debt."[34] Cullimore relies heavily on this rule to argue that Ms. Gonzalez presented the district court with no genuine issue of material fact on her § 1692e claims. The Midland Funding court took this rule verbatim from Bleich v. Revenue Maximization Group., Inc.[35] But the Bleich court, like the Midland Funding court, incorrectly applied § 1692g's standard to § 1692e-an action the Clark court expressly precluded. And the Bleich court's confusion of standards in the FDCPA has been rejected by several courts.[36] For example, in Healey v. Trans Union LLC, [37] a federal district court reviewed the same argument Cullimore makes today, and that the Midland Funding court's holding supports, and identified the error in such argument:

[The debt collector] argues the [consumer] cannot prove her § 1692e(2) claim because the FDCPA does not impose on a debt collector any duty to independently investigate the debt or the debtor. Although [the debt collector] is correct, this rule applies to violations of § 1692g, not violations of § 1692e. As the Ninth Circuit noted in Clark, the court's determination that the debt collector's verification of the debt did not violate the FDCPA was not the end of the court's inquiry into the plaintiffs' claims. Rather, the court continued on to analyze the plaintiffs' claim that the debt collectors knew that the debt alleged by the creditor was invalid and misstated in violation of § 1692e(2)(A). The Ninth Circuit held that a debt collector's conduct need not be knowing or intentional to violate § 1692e.[38]

         The Healey court went on to say

[T]he Ninth Circuit disapproved the standard the Bleich court applied to § 1692e claims. Although the Clark court agreed with Bleich that a debt collector may reasonably rely on its client's statements when verifying a debt pursuant to § 1692g, the court expressly disagreed with Bleich's conclusion that a plaintiff must show that the debt collector knowingly or intentionally misrepresented the debt in order to prevail under § 1692e.[39]

         ¶ 23 Midland Funding made the same mistake the Bleich court did in this situation. Midland Funding applied § 1692g's standard-that a debt collector may reasonably rely on its client's representation when verifying a debt-to § 1692e claims. The Midland Funding court essentially holds that if a debt collector meets the verification standards in § 1692g, any § 1692e claim cannot be sustained unless there is evidence of intentional misrepresentation. As discussed above, this expressly contradicts Clark and the overwhelming majority of courts that have addressed the issue.[40] Because the Midland Funding court misconstrued the Clark opinion and reviewed the § 1692e claims under an incorrect standard, we today abrogate Midland Funding.

         B. The Rule Established in Midland Funding Also Contradicts the Express Language of the FDCPA

         ¶ 24 In addition to incorrectly relying on Clark and other cases, we also abrogate Midland Funding because the court of appeals' holding contradicts the language of the FDCPA itself. Section 1692k(c) sets forth the bona fide error defense that precludes liability when a debt collector's misrepresentation is unintentional. But under the standard established by the Midland Funding court, a debtor must show, as a threshold requirement, that a debt collector's misrepresentation was intentional when claiming relief under § 1692e, thereby rendering § 1692k(c) superfluous. Therefore, because the court's holding in Midland Funding undermines the language of the FDCPA, we also abrogate it on this ground.

         ¶ 25 Section 1692k(c) is a debt collector's sole defense to its unintentional violations of the FDCPA.[41] It provides:

A debt collector may not be held liable in any action brought under this title if the debt collector shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.[42]

         ¶ 26 This broad provision is widely known as the affirmative "bona fide error defense"[43] and is interpreted as being a "narrow exception to strict liability."[44] Courts view the existence of ยง 1692k(c) in the FDCPA as a strong indication that Congress ...

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