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Dorrian v. LVNV Funding, LLC

Superior Court of Massachusetts, Suffolk, Business Litigation Session

March 30, 2017

Tara Dorrian, Individually and on Behalf of all Other Persons Similarly Situated
LVNV Funding, LLC; Virginia Newton, Individually and on Behalf of all Other Persons Similarly Situated
LVNV Funding, LLC No. 136615


          Janet L. Sanders, Justice of the Superior Court.

         These two consolidated cases allege unlawful debt collection activity by defendant LVNV Funding, LLC (LVNV). Specifically, plaintiff's claim that LVNV has used courts of this Commonwealth to collect consumer debts and otherwise engaged in collection activities without having obtained the requisite license from the Division of Banks. The Complaints in the two cases allege a violation of the Massachusetts Fair Debt Collection Practices Act, G.L.c. 93, § 24 et seq. (MDCPA) and Chapter 93A.[1] Plaintiffs seek declaratory and injunctive relief together with damages, attorneys fees and costs.

         Now before the Court are plaintiffs' Motion for Class Certification and the parties' Cross Motions for Summary Judgment in each of the two cases. Although the underlying facts are not in dispute, the motions raise a host of legal issues which are not easy to resolve. After careful review of the parties' submissions, this Court concludes that the plaintiffs' Motion for Class Certification must be ALLOWED . As to the cross motions, LVNV's Motions for Summary Judgment are ALLOWED as to Count Three and DENIED as to Count One. Plaintiffs' Cross Motions for Summary Judgment are ALLOWED as to Count One but DENIED as to Count Three. As to the relief appropriate, this Court defers that to another day.

         BACKGROUND [2]

         A. LVNV's Business

         LVNV is a Delaware limited liability company registered to do business in Massachusetts. In its Application for Registration filed with the Secretary of State, LVNV described the general character of its business as " consumer debt collection." In a letter to the Division of Banks dated August 3, 2012, LVNV's attorney described these debts as " previously defaulted consumer account portfolios." Although LVNV acquires these debts in order to collect on them and not for resale to others, it has never been licensed with the Division of Banks as a debt collector pursuant to the MDCPA. LVNV has stipulated that it uses instrumentalities of interstate commerce and the mails in conducting its business in Massachusetts.

         Between August 2009 and the present, at least 99 percent of LVNV's gross revenue has been derived from collecting on unpaid consumer debts owned by it. LVNV itself has no employees, however. To perform the tasks necessary to collect the debts that LVNV has acquired, LVNV uses a separate entity, Resurgent Capital Services, LP (Resurgent). Resurgent is licensed with the Division of Banks as a debt collector. LVNV's Servicing Agreement with Resurgent states that Resurgent " shall service and administer the Receivables in accordance with . . . The Fair Debt Collection Practices Act of 1977 (as amended) and comparable state statutes . . ." The Servicing Agreement also grants Resurgent a " Limited Power of Attorney" to take certain actions on LVNV's behalf. That includes contacting the debtors to seek payment. Resurgent has full discretion to hire third parties to assist in the collection efforts and to retain law firms to bring collection actions. There is no evidence in the summary judgment record that LVNV participates in these decisions. It is also undisputed that it has no direct contact with any debtor.

         Although Resurgent is the entity that actually contacts debtors and hires counsel to institute litigation, LVNV is the named plaintiff in every collection action or claim made in connection with a defaulted consumer debt that it owns. Because it remains at all times the owner of the debt in question, it would necessarily be the source of all documentation underlying that debt. All proceeds from the collection claims instituted on LVNV's behalf go to LVNV. Between 2010 and 2015, over 18, 000 lawsuits were brought against Massachusetts residents in Massachusetts courts seeking judgment on debts owned by LVNV. Judgment entered in over 17, 000 of them. During that same time period, approximately 3, 500 proofs of claims naming LVNV as the creditor were filed in bankruptcy cases in this Commonwealth where the debtor was a Massachusetts resident. Instructions were also sent to credit bureaus in LVNV's name concerning more than 600, 000 distinct debt accounts of Massachusetts residents. There are approximately 6, 175 accounts owned by LVNV in which a wage garnishment action was pending against a Massachusetts resident at some time between 2010 and May 2015.

         Lawsuits brought both in this state and elsewhere have targeted LVNV as a debt collector and challenged collection activity undertaken in its behalf. See e.g., Cunha v. LVNV Funding, LLC, 2015 WL 5737124 (D.Mass. 2015) (unpublished decision) (denying motion to dismiss). The Complaints and Answers filed in two of the out-of state lawsuits is part of the summary judgment record before this Court. Humes v. LVNV Funding, LLC et al. No. 3:11-AP-01016 (U.S. Bankruptcy Court, Eastern District of Arkansas), ( Humes ) attached to Affidavit of Kenneth Quat, Esq. as Exhibit L; Rosas v. Arrow Financial Services et al. No. 14-CV-6462 (U.S.D.C. Eastern District of New York), ( Rosas ) attached to Quat Affidavit as Exhibit K. In a Stipulation filed in the Rosas case on November 16, 2015, LVNV (together with other defendants, including Resurgent), admitted to being a " debt collector" under New York law by attempting to collect on consumer debts " directly or indirectly" and also admitted to being in violation of the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § § 1692 et seq. and the related New York state statute, N.Y. Code, § § 20-489 et seq. In the Humes case, LVNV filed an Answer dated July 16, 2012 where it admitted to being a " debt collector" under the FDCPA and the related Arkansas statute, ACA § § 17-24-502(5). Both the New York debt collection statute and the Arkansas statute define " debt collector" in much the same way as the Massachusetts statute here at issue.[3]

         B. Interpretations of the MDCPA by the Division of Banks

         The Division of Banks (the Division) is the state agency responsible for the supervision of state chartered banks and credit unions, as well as the supervision and licensing of other entities, including " debt collectors, " as that term is defined in the MDCPA. As part of its business, the Division issues advisory opinions in response to inquiries made from entities and individuals within the industries it regulates. A number of these inquires have concerned whether the entity is a " debt collector" which must obtain a license pursuant to G.L.c. 93, § 24A. Letters from the Division pertinent to this issue are the following.

          Advisory Opinion 1-072

         In response to an attorney's inquiry, the Division stated in an advisory opinion dated February 26, 2002 that, " based on the information provided" by the inquiry, the attorney's client did not have to obtain a license from the Division because, after having purchased debts from creditors, it had employed licensed collection agencies or collection attorneys to collect the debts. The client was not identified by name.

          Industry Letter Posted on Division's Website Dated June 16, 2006

         This letter followed an amendment to the MDCPA so as to track the FDCPA, particularly with regard to the statutory definition of " debt collector." The specific question discussed in this letter was whether one who purchases debt from another was a " creditor" who did not require a license or a " debt collector" who did. The letter stated that, if the debt was in default at the time of purchase and the purchaser " otherwise meets the definition of a debt collector" under the MDCPA, it would require a license. It then quoted the language of G.L.c. 93, § 24, which extends to those who either directly or indirectly seek to collect on consumer debt.

          Advisory Opinion 06-060, effective October 2, 2006

         This Advisory Opinion was precipitated by inquiries that followed the Industry Letter described above. Those inquiries asked whether entities who purchased debt for " investment purposes" had to be licensed. This Opinion Letter stated: " It is the position of the Division that a debt buyer who purchases debt in default but is not directly engaged in the collection of these purchased debts is not required to obtain a debt collector license, provided that all collection activity performed on behalf of such debt buyer is done by a properly licensed debt collector in the Commonwealth or an attorney at law licensed to practice law in the Commonwealth." [4]

          Advisory Opinion 12-012, dated November 1, 2012

         This opinion was issued following correspondence between an attorney representing LVNV and the Division's associate counsel. The attorney, Barbara Sinsley, explained to the Division's counsel in a letter dated August 3, 2012 that her client (not identified in the letter by name) purchased debt in default but then contracted with licensed third-party debt collectors and law firms to service accounts on its behalf, including filing lawsuits to collect on the obligations. Sinsley sought clarification from the Division as to whether her client required a license. The associate counsel for the Division responded by email in October 2012 that no license was required as long as the purchaser of the debt in default is not " directly engaged in the collection of the debt." The Division then issued Advisory Opinion 12-012 stating that a " buyer of debt in default who is not directly engaged in the collection of those debts is not required to obtain a license so long as collection activity is performed by a licensed debt collector."

          Advisory Opinion Letter 14-013020 dated March 4, 2014

         This opinion was issued in response to an inquiry from the attorney for another debt buyer, MidLand Funding. In that inquiry, the attorney stated that Midland Funding's " only activity is that it is the named plaintiff in suits brought against consumers on debts it has acquired" and that the actual collection activities are undertaken by another entity, which is licensed. The Division responded by stating that Midland Funding would not be a debt collector within the meaning of the MDCPA and thus would not need to get a license from the Division.

         During this same time period, there were certain changes in regulations applicable to debt collection activity. One of these changes was made by the Attorney General, who promulgates regulations that define what constitutes " unfair and deceptive collection practices" for purposes of G.L.c. 93A. 940 C.M.R. 7.00 et seq. Those regulations are specifically aimed at and designed to set forth standards for the conduct of " creditors, " defined therein to mean those who engaged in the collection of consumer debt.[5] In 2006, the Attorney General specifically included within the definition of " creditor" those who purchase delinquent debt and then hire a third party or attorney collect such debt.[6] 940 C.M.R. 7.03. In other words, the practices of such an entity would fall within the purview of the Attorney General's regulations that set forth what would be an unfair debt collection practice.

         Mound this same time, there was also an amendment to regulations under the MDCPA. 209 C.M.R. 18.02. That amendment incorporates the definition of a " debt collector" set forth by G.L.c. 93, § 24, but then added a sentence stating that a debt collector " shall also include any person who buys or acquires debt that is in default at the time of purchase or acquisition and who seeks to collect such debt directly ." (Emphasis added.) The implication thus seemed to be that debt purchasers who indirectly seek to collect on those debts are not " debt collectors." Although the amendment did not discuss the licensing requirement in particular, as of the present date, the Division continues to distinguish between what it calls " passive debt buyers" who do not require licenses and " debt collectors" who do. As stated on its official website site today:

A " passive" debt buyer purchases delinquent debts for investment purposes only and does not take part in any activities to directly collect on the debt. Commonly, the " passive" debt buyer hires either a licensed debt collector or any attorney to directly collect the purchased debts. A " passive" debt buyer is not required to obtain a debt collector license in Massachusetts if the collections are done by a properly licensed debt collector or an attorney licensed to practice law in the Commonwealth.

         Division of Banks, Debt Collections, Massachusetts Office of Consumer Affairs & Business Regulation (2017),

         C. Facts Relevant to Individual Plaintiffs

         In June 2007, plaintiff Virginia Newton applied for a credit account with Jordan's Furniture. That account allowed her to purchase goods using credit extended by HSBC Bank Nevada, N.A. (HSBC). The first ...

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