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Urbina v. National Business Factors, Inc.

United States District Court, D. Nevada

April 22, 2019


          ORDER RE: ECF NO. 49


         Before the court is Plaintiff Mercedes Urbina's Motion for Partial Summary Judgment. (ECF Nos. 49, 49-1, 49-2.) Defendant National Business Factors, Inc. of Nevada (NBF) filed a response. (ECF No. 50, errata at 54.) Urbina filed a reply. (ECF No. 51.)

         For the reasons stated below, Urbina's motion for partial summary judgment is denied, and summary judgment is granted in NBF's favor under Federal Rule of Civil Procedure 56(f) because a preponderance of the evidence demonstrates that NBF's violation of the Fair Dept Collection Practices Act, 15 U.S.C. § 1692, et. seq., "was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. §1692k(c).

         I. BACKGROUND

         Urbina is proceeding on her first amended complaint (FAC). (ECF No. 41.) Urbina alleges that she signed an agreement for medical services with Tahoe Fracture Clinic and received treatment from Tahoe Fracture Clinic periodically. Urbina and her insurance company made various payments for her medical treatment. Eventually, Tahoe Fracture Clinic sent Urbina a statement with a past due balance. Tahoe Fracture Clinic assigned the debt for collection to NBF, and NBF sent Urbina a collection letter requesting payment of principal and interest. Urbina alleges NBF violated the FDCPA because it was not permitted to charge interest under NRS 99.040, and even if it was permitted to charge interest, NBF calculated interest from the wrong starting date and did not have procedures in place to avoid such an error. Urbina moves for partial summary judgment as to NBF's liability under the FDCPA.

         NBF argues that it lawfully added interest to the account under NRS 99.040(1)(b) because the debt was a settled book account once all payments from the insurance company and Ubrina had been deducted. NBF admits that there was an error in calculating the amount of interest due, but argues that it should benefit from the bona fide error defense because Tahoe Fracture Clinic transmitted the wrong last date of payment to NBF when the account was assigned.


         “The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the facts before the court.” Northwest Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994) (citation omitted). In considering a motion for summary judgment, all reasonable inferences are drawn in favor of the non-moving party. In re Slatkin, 525 F.3d 805, 810 (9th Cir. 2008) (citation omitted). “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). On the other hand, where reasonable minds could differ on the material facts at issue, summary judgment is not appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).


         A. Material Facts

         The material facts are not in dispute:

Urbina signed agreements for medical services with Tahoe Fracture Clinic on December 17, 2013, and August 24, 2015, where she agreed she was "financially responsible for all charges whether or not paid by [ ] insurance." (ECF No. 49-1 at 7, 9.) The agreements said "all charges," but did not specifically mention interest.

         Urbina received treatment from Tahoe Fracture Clinic periodically between August 24, 2015 and June 14, 2016. (ECF No. 49-1 at 11-19.) Tahoe Fracture Clinic sent her a statement dated September 23, 2016, showing that after insurance adjustments and payments, as well as Urbina's payments of $30 on February 26, 2016, March 31, 2016, April 29, 2016, and August 12, 2016, Urbina's had a past due balance of $614.52. (Id.)

         On December 16, 2016, Tahoe Fracture Clinic sent Urbina a "final notice" indicating a balance owed of $614.52. (ECF No. 49-1 at 22; ECF No. 50 at 13.) This notice advised Urbina that she had not paid the balance due on her account and did not respond to notices. She was cautioned that if payment in full was not made within 10 days, Tahoe Fracture Clinic may turn her account over to legal collections. (Id.)

         Tahoe Fracture Clinic and NBF entered into a collection service agreement where Tahoe Fracture Clinic agreed to exclusively assign NBF its delinquent accounts for collection in exchange for a fee of the collected amount. (ECF No. 50 at 11.) The agreement contemplates that NBF could charge interest on the principal debt, at the rate provided by law. (Id.) The agreement states that Tahoe Fracture Clinic agreed to assign accounts to NBF "with only accurate data and that the balances reflect legitimate, enforceable obligations of the consumer." (Id.)

         Tahoe Fracture Clinic assigned Urbina's debt to NBF for collection on January 4, 2017.

         NBF obtains its collections files from Tahoe Fracture Clinic in a folder with many accounts that is sent to NBF in an encrypted email. The email goes to NBF's software and data is loaded into an information sheet that includes the date the account was assigned, the date of the last charge, the last pay, and last activity. NBF relies on its clients to provide the information, including the date of the last payment. The system then generates an initial collection notice.

         Tahoe Fracture Clinic did not (and as a practice does not) add interest to the account, and leaves it to NBF to decide whether and how much interest is charged. NBF does not charge interest if a client affirmatively asks that interest not be charged. Tahoe Fracture Clinic does not prohibit NBF from charging interest.

         NBF sent Urbina a collection notice on January 5, 2017, seeking to collect $614.52 in principal, and $29.07 in interest. (ECF No. 49-1 at 24; ECF No. 50 at 15.)

         NBF admits that the interest was calculated from February 26, 2016, through January 5, 2017. NBF contends that it received an incorrect date of last payment of February 26, 2016, from Tahoe Fracture Clinic when it assigned the debt to NBF for collection. Urbina actually made her last payment on August 12, 2016.

         B. Legal Issues

         The preliminary legal issue presented is whether NBF lawfully added interest to Urbina's account. If NBF was lawfully allowed to add interest, NBF admits that it calculated interest from the wrong date (February 26, 2016, instead of August 12, 2016). Therefore, the court must then consider whether the error was material so as to be actionable under the FDCPA, and if it is, whether NBF can take advantage of the bona fide error defense under 15 U.S.C. § 1692k(c).

         1. The FDCPA

         The FDCPA aims to protect consumers from abusive, unfair, and deceptive debt collection practices. See 15 U.S.C. § 1692; Gonzales v. Arrow Financial Services, LLC, 660 F.3d 1055, 1060 (9th Cir. 2011). Congress has authorized private individuals to bring suit for violations of the FDCPA. 15 U.S.C. § 1692k. To succeed on a claim made under the FDCPA, the plaintiff must establish: (1) he or she is a consumer; (2) the defendant is a debt collector; and (3) the defendant committed some act or omission in violation of the FDCPA. See 15 U.S.C. § 1692a(3)-(6). A prevailing plaintiff is entitled to actual damages, statutory damages and attorney's fees and costs. 15 U.S.C. § 1692k(a). Conversely, if the court finds the action was brought in bad faith or to harass, it may award the defendant its attorney's fees and costs. 15 U.S.C. § 1692k(a)(3).

         Here, there is no dispute that Urbina is a consumer, and that NBF is a debt collector; therefore, the issue is whether there has been a violation of the FDCPA.

         Section 1692e of the FDCPA prohibits the use of "any false, deceptive, or misleading representation or means in connection with the collection of any debt," and includes a non-exhaustive list of proscribed conduct. As is relevant here, section 1692e prohibits a debt collector from: falsely representing the character, amount or legal status of a debt (§1692e(2)(A)); threatening to take action that cannot legally be taken (§ 1692e(5)); and, using false or deceptive means to collect or attempt to collect a debt (§ 1692e(10)).

         Section 1692f of the FDCPA precludes a debt collector from engaging in unfair or unconscionable conduct to collect a debt, and also includes a non-exhaustive list of proscribed conduct. For purposes of this case, section 1692(f) precludes a debt collector from collecting interest "unless such amount is expressly authorized by the agreement creating the debt or [is] permitted by law." 15 U.S.C. § 1592(f)(1) (emphasis added).

         The Ninth Circuit has adopted the least sophisticated consumer standard in evaluating these violations. See e.g. Afewerki v. Anaya Law Grp., 868 F.3d 771, 775 (9th Cir. 2017); Tourgeman v. Collins Fin. Servs., 755 F.3d 1109, 1119 (9th Cir. 2014) (citation omitted). This is an objective standard, and a violation of the FDCPA is determined by the court as a matter of law. See Afewerki, 868 F.3d at 775; Tourgeman, 755 F.3d at 1118 (citation omitted). The standard asks "whether the hypothetical least sophisticated debtor would likely have been misled." Afewerki, 868 F.3d at 775.

         2. Was NBF's Attempt to Collect Interest on the Debt Lawful?

         As was stated above, a debt collector may collect interest charges on a debt if interest charges are "expressly authorized by the agreement creating the debt" or interest charges are "permitted by law." 15 U.S.C. § 1692(f)(1). A false representation regarding the amount of a debt violates 15 U.S.C. § 1692e(2). If the debt collector was not lawfully permitted to collect or attempt to collect interest on a debt, the debt collector would also violate 15 U.S.C. § 1692e(5). Finally, an interest charges which violates section 1692f of the FDCPA also necessarily violates section 1692e(10), which prohibits the use of false representations or deceptive means to collect a debt. See e.g. Valentin v. Grant Mercantile Agency, Inc., No. 1:17-cv-01019-AWI-SKO, 2017 WL 6604410, at *6 (E.D. Cal., Dec. 27, 2017) (citing Newman v. Checkrite Cal., Inc., 912 F.Supp. 1354, 1367 (E.D. Cal. 1995), superseded by statute on other grounds).

         NBF argues that its contract with Tahoe Fracture Clinic authorized it to collect interest on accounts assigned by Tahoe Fracture Clinic to NBF; however, the language of section 1692(f)(1) focuses on "the agreement creating the debt" and not the agreement between the creditor and the debt collector.

         The agreements Urbina signed with Tahoe Fracture Clinic did not expressly authorize the collection of interest, but instead generally refer to Urbina being responsible for "all charges." The court finds that such broad language cannot be construed as evidence of an intent to agree to allow interest to be charged on a debt. As a result, the court must determine whether Nevada law authorized NBF to collect interest on the debt.

         a. NRS 99.040

         i. The Statute

         Nevada law allows the recovery of interest on debts under certain circumstances. NRS 99.040 provides:

1. When there is no express contract in writing fixing a different rate of interest, interest must be allowed at a rate equal to the prime rate at the largest bank in Nevada, as ascertained by the Commissioner of Financial Institutions, on January 1 or July 1, as the case may be, immediately preceding the date of the transaction, plus 2 percent, upon all money from the time it becomes due, in the following cases:
(a) Upon contracts, express or implied, other than book accounts;
(b) Upon the settlement of book or store accounts from the day on which the balance is ascertained.
(c) Upon money received to the use and benefit of another and detained without his or her consent.
(d) Upon wages or salary, if it is unpaid when due, after demand therefor has been made.
The rate must be adjusted accordingly on each January 1 and July 1 thereafter until the judgment is satisfied.
2. The provisions of this section do not apply to money owed pursuant to chapter 624 of NRS which is governed by the ...

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