Consumers and their attorneys are constantly seeking to expand the pool of potential FDCPA defendants using principles of vicarious liability. Debt buyers are being sued based on the conduct of their agencies and law firms. Lawyers and agency owners are being sued based on the conduct of their clients and their collectors. Even original creditors, who are not subject to the FDCPA, are being drawn into FDCPA litigation under various theories of recovery. What are the limits of vicarious liability under the FDCPA? How can debt collectors avoid liability for the conduct of others?
Limits on Direct Liability
Before examining vicarious liability under the FDCPA, it is important to remember that Congress significantly limited the scope of direct liability under the Act. For example, generally speaking, the Act applies only to “debt collectors” who regularly attempt to collect debts that are “due another.” For this reason, original creditors are not subject to the FDCPA (except in very limited circumstances). See, e.g., Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985) (“The legislative history of section 1692a(6) indicates conclusively that a debt collector does not include the consumer’s creditors…or an assignee of a debt, as long as the debt was not in default at the time it was assigned.”). Because original creditors are not subject to the FDCPA, courts have recognized they may not be held vicariously liable for the FDCPA violations of the debt collectors they retain. See Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 108 (6th Cir. 1996) (assignee of auto loan not vicariously liable for FDCPA violations of its attorneys: “We do not think it would accord with the intent of Congress, as manifested in the terms of the Act, for a company that is not a debt collector to be held vicariously liable for a collection suit filing that violates the Act only because the filing attorney is a ‘debt collector.’”).
Courts have recognized that shareholders, officers or employees of a corporate debt collector may not be directly liable under the FDCPA, unless the plaintiff can meet the strict requirements necessary to pierce the corporate veil. See, e.g., White v. Goodman, 200 F.3d 1016, 1019 (7th Cir. 2000) (FDCPA claim filed against shareholder of agency was frivolous: “The Fair Debt Collection Practices Act is not aimed at the shareholders of debt collectors operating in the corporate form unless some basis is shown for piercing the corporate veil, which was not attempted here.”) (citation omitted); Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057 (7th Cir. 2000) (president and largest shareholder of agency not personally liable: “the extent of control exercised by the officer or shareholder is irrelevant to determining his liability under the FDCPA.”). But see Kistner v. Law Office of Michael P. Margelefsky, LLC, 518 F.3d 433, 437-38 (6th Cir. 2008) (sole member of LLC may be held liable under FDCPA if he plays a significant role in directing the firm’s debt collection activities).
Even someone who is a “debt collector” under the statute must engage in some sort of prohibited conduct with respect to the debtor in order to be directly, as opposed to vicariously, liable under the FDCPA. The Act allows a plaintiff to seek actual damages and “additional damages” but only where the defendant collector has “fail[ed] to comply” with a “provision of this title” and has done so “with respect to” the plaintiff. See 15 U.S.C. § 1692k(a) (“[A]ny debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of …”). Thus, if the consumer cannot prove that the collector “failed to comply” with the FDCPA, he may not recover any of the remedies provided by the Act from that collector.
Where a violation occurs, the FDCPA places significant limits on the collector’s liability. In an individual action, a plaintiff may recover actual damages, but courts have consistently held that “additional damages” are limited to a maximum of $1,000 “per proceeding” and not $1,000 “per violation.” See, e.g., Wright v. Finance Servs. of Norwalk, Inc., 22 F.3d 647, 650-51 (6th Cir. 1994) (additional damages limited to $1,000 even though defendant committed fourteen violations: “Congress certainly knows how to write statutes that make each separate violation subject to a separate penalty, or even that make each separate day of a violation a separate offense subject to a separate penalty.”) (citations omitted); Harper v. Better Bus. Servs., Inc., 961 F.2d 1561, 1563 (11th Cir. 1992) (additional damages limited to $1,000 even though defendant committed seven violations: “The FDCPA does not on its face authorize additional statutory damages of $1,000 per violation of the statute, of $1,000 per improper communication, or of $1,000 per alleged debt. If Congress had intended such limitations, it could have used that terminology.”).
There are also strict limits on liability in FDCPA class actions, where the statute caps the “additional damages” to the class at the lesser of $500,000 or one percent of the “net worth” of any collector who “fails to comply” with a provision of the Act. See 15 U.S.C. § 1692k(a)(2)(B). The term “net worth” means the “book net worth” or “balance sheet net worth” of the collector, calculated using GAAP, not the “fair market value” of the collector. See Sanders v. Jackson, 209 F.3d 998, 1001-02 (7th Cir. 2000) (the “primary purpose of the net worth provision is a protective one. It ensures that defendants are not forced to liquidate their companies in order to satisfy” a damage award).
If a violation is established, the court does not automatically award the maximum possible additional damages. In fact, it may award zero damages. One famous example is Jerman v. Carlisle, where the plaintiff prevailed in an FDCPA class action in the United States Supreme Court, but was awarded zero damages upon remand. See Jerman v. Carlisle, et al., 2011 WL 1434679 (N.D. Ohio Apr. 14, 2011). The Jerman court observed that the FDCPA sets “no minimum damages” and that statutory damages are “not automatic.” Id. at *11. It agreed that “where there are no actual damages and no evidence of an intent to engage in abusive and deceptive debt collection practices, additional damages are not warranted.” Id.
Limits On Vicarious Liability
If a collector is not directly liable, when may it be held vicariously liable? The scope of vicarious liability turns on proof that the defendant exercised control over another debt collector’s conduct. “[T]o be liable for the actions of another, the principal must exercise control over the conduct or activities of the agent.” Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162, 1173 (9th Cir. 2006) (citation omitted). In Clark, the Ninth Circuit affirmed summary judgment for an attorney, because there was no evidence that he exercised control over the actions of his client. Id.