Kaiser v. Cascade Capital, LLC

989 F.3d 1127

Michael KAISER; Margaret J. Loewen, on behalf of themselves and others similarly situated, Plaintiffs-Appellants,

v.CASCADE CAPITAL, LLC; Gordon, Aylworth & Tami P.C., Defendants-Appellees.

No. 19-35151

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 16, 2020 Seattle, Washington

Filed March 9, 2021

Mark G. Passannante (argued), Broer & Passannante PS, Portland, Oregon; Bret Knewtson, Hillsboro, Oregon; for Plaintiffs-Appellants.

Kelly F. Huedepohl (argued), Gordon Rees Scully Mansukhani, LLP, Portland, Oregon, for Defendants-Appellees.

Before: Ronald M. Gould and Michelle T. Friedland, Circuit Judges, and Stephen R. Bough,^* District Judge.

FRIEDLAND, Circuit Judge:

The Fair Debt Collection Practices Act ("FDCPA") prohibits debt collection practices that are misleading, unfair, or unconscionable. Those prohibited practices include filing or threatening to file a lawsuit to collect debts that were defaulted on so long ago that a suit would be outside the applicable statute of limitations. The parties ask us to decide whether the FDCPA's prohibitions regarding such "time-barred debts" apply even if it was unclear at the time a debt collector sued or threatened suit whether a lawsuit was time barred under state law.

We hold that they do. The FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, so a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct. Because the district court held the opposite, we reverse and remand for further proceedings.

We emphasize, however, that debt collectors could avoid liability by successfully asserting the statute's affirmative defense for bona fide errors. A mistake about the time-barred status of a debt under state law may be such an error. We leave it to the district court to consider in the first instance whether a bona fide error defense, if raised on remand, could succeed in this case.

I.

Plaintiff Michael Kaiser purchased a car under a retail installment sale contract.¹ He defaulted on his payments, and his car was repossessed and sold. The proceeds from the sale failed to cover the outstanding balance under the contract, and Kaiser did not pay the remaining amount due. Years later, the creditor, Defendant Cascade Capital, LLC, sought to collect that deficiency balance. It hired a law firm, Defendant Gordon, Aylworth & Tami, P.C. ("GAT"), to represent it. GAT sent Kaiser a letter that stated the firm "ha[d] been retained with the authority to file a lawsuit" against him and demanded payment of the outstanding debt.² Kaiser failed to pay, and Defendants (collectively, "Cascade") sued him in Oregon state court.

The collection attempts—both the letter and the lawsuit—occurred between four and six years after Kaiser's default. Kaiser responded to Cascade's state court lawsuit by arguing that the debt was time barred under Oregon's four-year statute of limitations for sale-of-goods contract claims, Or. Rev. Stat. § 72.7250. Cascade countered that Oregon's six-year statute of limitations for other contract claims, Or. Rev. Stat. § 12.080, applied instead. The state court ruled for Kaiser.

Kaiser then filed this putative class action in the United States District Court for the District of Oregon.³ He alleged that Cascade violated the FDCPA by threatening litigation over time-barred debt in its collection letter and by filing a lawsuit to collect time-barred debt. The district court dismissed for failure to state a claim, reasoning in part that Cascade did not violate the FDCPA because the state statute of limitations had been unclear when Cascade attempted to collect the debt.⁴ Kaiser timely appealed.

II.

We review de novo an order granting a motion to dismiss, taking all factual allegations as true. Naruto v. Slater , 888 F.3d 418, 421 (9th Cir. 2018). We also review de novo a district court's interpretation of a federal statute. United States v. Pacheco , 977 F.3d 764, 767 (9th Cir. 2020).

When the application of a federal statute depends on state law, "federal authorities must apply what they find to be the state law." Comm'r v. Bosch's Est. , 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). Absent controlling precedent from the state supreme court, a federal court must "predict how the highest state court would decide the [state law] issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance." Judd v. Weinstein , 967 F.3d 952, 955–56 (9th Cir. 2020) (quoting Lewis v. Tel. Emps. Credit Union , 87 F.3d 1537, 1545 (9th Cir. 1996) ). We review de novo a district court's interpretation of state law. Feldman v. Allstate Ins. Co. , 322 F.3d 660, 665 (9th Cir. 2003).

III.

A.

We first address whether Kaiser's debt was time barred under Oregon law. The status of the debt turns on which statute of limitations would govern a lawsuit to collect the debt. The applicable statute of limitations depends on whether a lawsuit to recover the deficiency balance on Kaiser's retail installment contract would more closely relate to the portion of the contract for the underlying sale of the car or the portion of the contract creating the security interest in the car. If the lawsuit would more closely relate to the sale portion, then a four-year statute of limitations would apply; otherwise, a six-year statute of limitations would. Compare Or. Rev. Stat. § 72.7250 (requiring claims of breach of contract for a sale of goods to be brought within four years), with id. § 12.080 (requiring other contract claims to be brought within six years).⁵

The Oregon Supreme Court has made a statement in passing that helps inform this decision: "[A]n action [by a creditor] for part of the purchase price is more closely related to the sale portion of the contract than it is to the security portion." Chaney v. Fields Chevrolet Co. , 264 Or. 21, 503 P.2d 1239, 1241 (1972) ; see also 68A Am. Jur. 2d Secured Transactions § 565, Westlaw (database updated Feb. 2021) ("[T]he action of the creditor to recover a deficiency judgment from a credit buyer of goods is in substance an action to recover the balance of the purchase price and is therefore subject to the statute of limitations applicable to such actions."). Because no subsequent authority contradicts or casts doubt on that statement in Chaney , we predict that the Oregon Supreme Court would hold that the four-year statute of limitations would apply to a suit to collect on Kaiser's debt.⁶

Two other considerations support this prediction. First, the four-year statute of limitations for breaches of contract for a sale of goods originated from Oregon's codification of Article 2 of the Uniform Commercial Code ("U.C.C."). See Or. Rev. Stat. § 72.7250. Oregon applies Article 2 to sales transactions with a security element unless the "collateral is transferred by a debtor to a creditor solely as security." All-States Leasing Co. v. Ochs , 42 Or.App. 319, 600 P.2d 899, 907 n.9 (1979). No collateral was transferred to a creditor solely as security here, so we expect Oregon would extend the Article 2 statute of limitations to a suit to collect Kaiser's debt.

Second, our prediction aligns with Oregon's preference for interstate uniformity when interpreting the U.C.C. See Or. Rev. Stat. § 71.1030(1)(c) (explaining that one purpose of the U.C.C. is "[t]o make uniform the law among the various jurisdictions"); Schultz v. Bank of the W., C.B.C. , 325 Or. 81, 934 P.2d 421, 424 (1997) (examining other states' judicial decisions to interpret the U.C.C.). A clear majority of other states apply the Article 2 statute of limitations for sales of goods to actions to recover deficiency balances after repossession of the good. See, e.g. , Suntrust Bank v. Venable , 299 Ga. 655, 791 S.E.2d 5, 7–9 (2016) (describing and adopting the majority view); Coastal Fed. Credit Union v. Brown , 417 S.C. 544, 790 S.E.2d 417, 420–22 (Ct. App. 2016) (same); see also Assocs. Disc. Corp. v. Palmer , 47 N.J. 183, 219 A.2d 858, 860–61 (1966) (holding the same, and cited by Chaney , 503 P.2d at 1240–41 ). Given this, we have great confidence that the Oregon Supreme Court would hold the four-year statute of limitations would apply to a suit on Kaiser's debt.

Accordingly, we proceed on the understanding that Kaiser's debt was time barred at the time Cascade attempted to collect it.

B.

We now address the legality of Cascade's conduct under the FDCPA given that the debt was time barred. We join our sister circuits in holding that attempts to collect on time-barred debt through a lawsuit or threat of suit violate the FDCPA. Whether Cascade may have been unsure of the legal status of the debt under Oregon state law does not affect this conclusion—though, as we explain, it affects Cascade's ability to assert a bona fide error defense to liability.

1.

The FDCPA prohibits debt collectors from using any "unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f.⁷ It also prohibits using "any false, deceptive, or misleading representation" to collect a debt, including any "false representation of the character, amount, or legal status of any debt" and any "threat to take any action that cannot legally be taken." Id. § 1692e, (2)(A), (5). We hold that lawsuits to collect time-barred debts are both unfair and misleading, violating § 1692f and § 1692e respectively, and threats to sue on time-barred debts are at least misleading, violating § 1692e.⁸

Suing to collect on an unenforceable debt is patently unfair to the consumer. Empirical evidence gathered by the Federal Trade Commission indicates that the vast majority of suits on time-barred debt will lead to default judgments, even though the debts are unenforceable, "because 90% or more of consumers sued in these actions do not appear in court to defend."...