Lawrence v. First Fin. Inv. Fund V, LLC

444 F.Supp.3d 1313

Crystal LAWRENCE, Plaintiff,

v.FIRST FINANCIAL INVESTMENT FUND V, LLC, Defendant.

2:19-cv-174-RJS-CMR

United States District Court, D. Utah.

Signed March 5, 2020

Daniel M. Baczynski, Baczynski Law PLLC, Tyler B. Ayres, Ayres Law Firm, Draper, UT, Scott C. Borison, Pro Hac Vice, Legg Law Firm LLC, San Mateo, CA, for Plaintiff.

Melanie J. Vartabedian, Nathan R. Marigoni, Tyler M. Hawkins, Ballard Spahr LLP, Salt Lake City, UT, for Defendant.

MEMORANDUM DECISION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

ROBERT J. SHELBY, United States Chief District Judge

Defendant First Financial Investment Fund V, LLC (First Financial) employs a simple business model: it buys defaulted debts previously owed to others; it pursues collection on those debts through law firms or collections agencies, who often obtain from Utah state courts default judgments on those debts; and it repeats the process. First Financial conducts its business without registering as a debt collector or posting a bond as Utah law requires for traditional collection agencies. Plaintiff Crystal Lawrence is one of many Utah residents against whom First Financial sought and obtained a default judgment on a delinquent debt. Lawrence contends First Financial's practice of suing on these debts without registering as a debt collector violates both Utah and federal law.

Several state and federal courts have addressed under various laws the underlying issue at the heart of this dispute, but this case presents a question of first impression under Utah law. Namely, does Section 12-1-1 of the Utah Collection Agency Act require registration as debt collectors by entities that regularly purchase debts originated by someone else, and then seek to collect those debts for their own account? The court concludes registration is required. Before the court are First Financial's Motion to Certify a Question of State Law to the Utah Supreme Court¹ and Motion for Summary Judgment.² For the reasons given below, the court DENIES both Motions.

BACKGROUND

The factual record before the court is sparse and mostly undisputed. After introducing the parties in this action, the court provides a brief overview of the debt buying industry.

I. First Financial and Lawrence

First Financial is in the business of purchasing and collecting on defaulted third-party debts.³ It has no employees and does not have any direct contact with obligors on the accounts it owns.⁴ Instead, First Financial outsources to collection agencies and law firms its collection efforts on debts it owns.⁵ First Financial both advertises its business of purchasing debts and actively solicits the purchase of debts for collection.⁶

After Lawrence defaulted on a debt she owed to a medical provider, First Financial acquired her account.⁷ In June 2018, the Gurstel Law Firm, acting as First Financial's legal representative, filed a debt collection action against Lawrence in Utah state court.⁸ As the real party in interest, the lawsuit listed First Financial as the plaintiff.⁹ First Financial was not registered as a collection agency when the action was filed.¹⁰ In September 2018, First Financial obtained a $2,492.17 judgment against Lawrence.¹¹ First Financial has filed many similar actions in Utah state court to obtain judgments on defaulted debts.¹²

II. The Debt Buying Industry¹³

Debt collection often entails the following process. First, a creditor determines a consumer (the debtor) is delinquent on an account and that the consumer should be contacted about the debt.¹⁴ If contacting the consumer by phone, letter, or other method is unsuccessful (typically over a six-month to one-year period), the creditor will "charge off the account."¹⁵ At this point, creditors often turn to collection agencies or collection law firms, who pursue both non-judicial (more letters and phone calls) and judicial (lawsuits) remedies.¹⁶ If the debt collector succeeds in collecting on the debt, it is paid a portion of the amount collected.¹⁷

In the late 1980s, a new option became available to creditors holding charged off accounts. Rather than contract with debt collectors to collect on the debt, some creditors began selling consumer debts to debt buyers.¹⁸ And the debts are not expensive: buyers pay on average around four cents per dollar of debt face value.¹⁹ Fueled by consumers taking on increasing amounts of revolving debt in the 1990s and early 2000s, the number and type of debt buyers rapidly expanded.²⁰ The FTC now estimates there are hundreds, if not thousands, of entities that purchase debts for the purpose of attempting to collect on that debt for profit.²¹

With this brief background in mind, the court turns to the legal question before it.

LEGAL STANDARD

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."²² A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."²³ A fact is material if, under the governing substantive law, it could "affect the outcome of the suit."²⁴ When applying this standard, the court "view[s] the evidence and make[s] all reasonable inferences in the light most favorable to the nonmoving party."²⁵

ANALYSIS

Lawrence brings two causes of action, both related to First Financial's business of purchasing and collecting defaulted third-party debts. First, Lawrence claims First Financial violated the Fair Debt Collection Practices Act (FDCPA) by pursuing debt collection in Utah state courts without first registering as a debt collector.²⁶ Second, Lawrence claims First Financial's failure to register before suing on debts violates the Utah Consumer Sales Practices Act.²⁷ Both claims depend on Lawrence's assertion that First Financial is a debt collector under Section 12-1-1 (the Registration Statute or Statute) of the Utah Collection Agency Act (UCAA).²⁸ If First Financial is not a debt collector, it is not required to register or pay a bond before suing to collect on debts it owns. Before turning to that issue, the court first resolves First Financial's invitation to certify to the Utah Supreme Court the central question here presented.

I. The Court Will Not Certify First Financial's Proposed Question

First Financial moves to certify this question to the Utah Supreme Court: "Does the registration and bond requirement set forth in Utah Code § 12-1-1 apply to an owner of debt that hires registered or exempted third parties to conduct all debt collection activities on behalf of the debt owner?"

Federal courts may certify questions to the Utah Supreme Court under Utah Appellate Rule of Procedure 41 where "the state of the law of Utah applicable to a proceeding before the certifying court is uncertain."²⁹ Certification can be helpful where the question at issue "(1) may be determinative of the case at hand and (2) is sufficiently novel that [the certifying court] feel[s] uncomfortable attempting to decide it without further guidance."³⁰ But while courts may choose to certify questions involving "unsettled" areas of state law,³¹ "certification is not to be routinely invoked" simply because a federal court faces an issue of first impression.³² If a "reasonably clear and principled course" is available, courts should exercise "judgment and restraint" before certifying questions.³³ Federal district courts enjoy wide latitude in deciding certification motions.³⁴

First Financial correctly contends that resolution of the question concerning the Registration Statute's applicability to debt buyers likely will be determinative of the case. But while the issue at the heart of this case presents a previously unanswered question of Utah law, it is not so novel or complex that the court is incapable of interpreting the Statute without first consulting the Utah Supreme Court. Indeed, while no court has yet determined whether the Statute applies to debt buying businesses like First Financial, several courts have considered the general question as it applies under other, substantially similar state laws (as well as under federal law).³⁵ Moreover, as explained below, the court has identified a reasonably clear and principled course to follow in answering the relevant question. Certification of First Financial's proposed question is unnecessary.

II. The Utah Collection Agency Act Applies to Debt Buyers

This case turns on whether the Registration Statute covers entities whose primary purpose is the purchase and collection of defaulted debts originally owed to others. The Statute provides:

No person shall conduct a collection agency, collection bureau, or collection office in this state, or engage in this state in the business of soliciting the right to collect or receive payment for another of any account, bill, or other indebtedness, or advertise for or solicit in print the right to collect or receive payment for another of any account, bill, or other indebtedness, unless at the time of conducting the collection agency, collection bureau, collection office, or collection business, or of advertising or soliciting, that person or the person for whom he may be acting as agent, is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond as hereinafter specified.³⁶

In other words, the Registration Statute requires both registration with the Division of Corporations and Commercial code and payment of a bond if a person undertakes the following in Utah: (1) conducts a collection agency, collection bureau, or collection office; (2) engages in soliciting the right to collect or receive payment for another of any account, bill, or other indebtedness; or (3) advertises for the right to collect or receive payment for another of any account, bill, or other indebtedness. First Financial is required to register and post a bond only if its business activities encompass one of these three categories.

When interpreting state statutes,...