Palisades may be dying, but 425.109 is coming back to life. (Wisconsin Consumer Act)

A touch of good and a touch of the bad in a consumer credit case here -- "good" and "bad" being entirely subjective and based upon where you line up, on the creditor, or debtor, side, in the law.

The case I've just finished reading is Central Prairie Financial v. Yang, and it is a "Palisades" case, but one that unlike many of the Palisades cases guys like me (primarily debtor-side work) have to work with, this one looks likely to be published, and that's both good and bad.

It's good, no matter how you look at it because unpublished opinions are stupid.  Everything a court says should be able to be relied on by other courts, and everything an appellate court says should be a directive to lower courts and able to be cited.

It's bad, though, for debtors in that it seems to kind of undermine Palisades, or at least limit the holding of Palisades.

The issue in Yang is the same as in Palisades:  whether an affidavit is sufficient to get business records into evidence on summary judgment.  But this opinion takes a dimmer view of the reach of Palisades:

Yang’s reliance on Palisades is unavailing. Palisades stands for the extremely narrow proposition that the hearsay exception for business records is not established when the only affiant concerning the records in question lacks personal knowledge of how the records were made. See Palisades, 324 Wis. 2d 180, ¶22

Anytime a court describes a case as "extremely narrow," you're not going to win an argument premised on that case's holding, I'd say, and Yang fares no better -- but the Court appears to have (maybe almost) gotten it right, if I understand the way things worked out.

Central Prairie is a debt buyer, and they bought Chase's credit debts, including Yang's.  On summary judgment, though, unlike Palisades, Central Prairie had other affidavits. It had one from its own employee:

The affidavit of Central Prairie’s own record custodian confirms his personal knowledge of Central Prairie’s regular practice of purchasing defaulted Chase accounts and receiving transmission of “electronic account information at the time the accounts are assigned,” along with the terms and conditions and account statements, which records are regularly “integrated … from Chase Bank USA, N.A. into [Central Prairie’s] own business records.” This aspect alone, the custodian’s explanation of the regular processes by which Chase’s electronic account records are transmitted to its assignees, already differentiates this case from Palisades, where the affiant had no apparent knowledge of how Chase prepared its accounts

OK, you say, but what about how Chase prepared its accounts? Can a Central Prairie employee validate the Chase accounts it received? It sounds to me kind of like -- electronic transmission aside, as the means of transmission do nothing to validate records -- that what Central Prairie said is "Yeah, Chase sent us some records."

That's where things get a bit... twisty.  There was a bill of sale from Chase to another company (Global) to Central Prairie, and the Central Prairie said that those all are business records, etc.  (actually they are contracts and contracts are probably not admissible under the business records exception but rather are not hearsay at all, but that's for another day), and the bill of sale... I'll let the Court tell you:

That documentation of the Bill of Sale, moreover, includes a statement from Chase’s authorized representative that Chase’s own records “made at or near the time” of the material events and “kept in the ordinary course” of Chase’s business reflect the existence of Yang’s account and the amount of his indebtedness, as well as the affidavit of the records custodian for the intermediary assignee, Global Acceptance, stating that the records of Yang’s account reflect the account data furnished by Chase to Global Acceptance at the time of that assignment.

So really what you seem to have here is an unsworn, out-of-court statement from Chase (aka hearsay) about the creation of the business records, a statement that appears to simply parrot the lines of the statute rather than say how they were created.  Whether that's enough is up to debate -- I say no, some courts say yes.  (It probably shouldn't be enough: what should happen is the way the records are created ought to be detailed , e.g. "then we enter the data and press "tab"" and the like, something that's especially important given revelations that Bank of America employees often couldn't access varying computer systems that were used in their workplace).

That unsworn, out-of-court statement is admitted into evidence via the "Bill of Sale," which itself is maybe not hearsay -- contracts are not hearsay -- which is maybe compounded by the record custodian testifying in his affidavit that based on his review of the records Yang had a contract with Chase:

The same affiant further confirms that “based on his review of those records,” Yang was issued a Chase credit card account, agreed to be bound by the Cardmember Agreement, and incurred charges as reflected in the monthly billing statements; “true and correct” copies of the Cardmember Agreement and billing statements are attached. The same affiant also swore that the documentation of the Bill of Sale of the account from Chase to Global Acceptance and the subsequent assignment from Global Acceptance to Central Prairie were a “true and correct” copy of the documentation of those events held in Central Prairie’s records.

So, to track it now, Yang has been sued and the proof of Yang's responsibility for the charges is:

1.  A statement from a Chase representative contained in a bill of sale, which is
2. A bill of sale from Chase to Global Acceptance and then to Central Prairie, whose
3. Employee testified that the Chase records looked to be okay to him.

That's a pretty big extension of Palisades' requirement that a custodian be qualified to testify to the records.  Even assuming that a Central Prairie employee can authenticate the Bill of Sale, how do you get around the fact that the Chase statements in the Bill of Sale are hearsay?

Answer: Ignore it. Oh, and cite to a 1943 case:

The key documents here—the Cardmember Agreement, billing statements, and documentation of the sale and assignment of Yang’s account—fall under this exception, because affidavits establish the affiants’ personal knowledge that those documents record events that occurred at the times recorded, in the course of regularly conducted business activity. As Central Prairie pointed out in its summary judgment argument: 

The routine of modern affairs, mercantile, financial and industrial, is conducted with so extreme a division of labor that the transactions cannot be proved at first hand without the concurrence of persons, each of whom can contribute no more than a slight part, and that part not dependent on his memory of the event. Records, and records alone, are their adequate repository, and are in practice accepted as accurate upon the faith of the routine itself, and of the selfconsistency of their contents. Unless they can be used in court without the task of calling those who at all stages had a part in the transactions recorded, nobody need ever pay a debt, if only his creditor does a large enough business. Palmer v. Hoffman, 318 U.S. 109, 112 n.2 (1943).

I mean, a footnote to a 1943 case. All of that footnote is true, of course, but none of it matters when it comes to admitting things into evidence, which the Yang decision doesn't address.  Yes, records are the substance of a business' memory, which is why we have to have a custodian testify as to how they were made -- because records can be created in a variety of ways, and at a variety of times, and a record created contemporaneously in accordance with routines is deemed reliable, whereas a record created months later and relying on hearsay may not be.

The good, in the case? As an aside, the Court of Appeals hits at the continued vitality of one of the most wrong-headed decisions in recent years, the Rsidue case which exempted some assignees from complying with section 425.109.  Answering an argument about whether Central had to comply with that statute, the Court noted

that in Wisconsin the assignee of a consumer debt is not a “creditor” under Wisconsin’s consumer credit statutes, provided that the assignee does not regularly lend money directly to consumers. Rsidue, L.L.C. v. Michaud, 2006 WI App 164, ¶14, 295 Wis. 2d 585, 721 N.W.2d 718.

Which is another way of saying that only assignees who are not themselves merchants get out of pleading in compliance with section 425.109, Stats., which is another way of saying that assignees now may be required to prove that even if they were assigned this debt they do not qualify as a merchant for other debts, which is  another way of saying that even with the continued vitality of Palisades being slowly eroded away, other defenses may spring up for debtors.

Good strategic plan: Sue everyone in sight. BETTER Strategic plan: Wait three days before actually signing any contract. (Consumer Matters)

Assignments are neither cash nor credit, so be careful what you sign when a well-meaning stranger comes to your door offering to find you riches in California. So (might have) the Court said in the short, long-ago case of Bechstein v. Brandenburger & Davis, 474 F. Supp. 971 (E.D. WI 1979).

Bechstein was approached by a representative of the defendant, who suggested that Bechstein may be interested in an estate in California. For 1/3 of the recovery, the rep said, Bechstein could get them to do all the work.  Bechstein signed on, but changed his mind and tried to rescind the agreement under section 423.202, which lets consumer approval transactions be rescinded within 3 days of notice given by the merchant of that right.

The company said no way, and filed in California for approval of the claim.  Bechstein did what my old torts professor suggested people do, and sued everyone in sight: objecting in California and filing this action for declaratory judgment.

Bechstein then did what 50% of all litigants do, and lost the case(s): California approved the transaction, and the court here said that the agreement was nonrescindable.  While it met the first two elements of the statute (initiated away from the  merchant's place of business, written agreement received away from the merchant's place of business) the third element wasn't met: the agreement was not for credit, as no finance charge was or could be imposed, and it wasn't for a cash price exceeding $25, as an assignment is not cash.  Bechstein ended up getting $30,000 inherited, but paying $10,000 for the transaction.

Actually, yes, I am comfortable up on this soapbox, why do you ask? (Consumer Matters)

Today's case, Hollingsworth v. American Finance Corp.86 Wis.2d 172, 271 N.W.2d 872 (1978), is not so much a Wisconsin Consumer Act case as it is a default judgment case, Hollingsworth could also be a cautionary tale in how not to litigate, from either side.

And how not to do business, although the question arises that if you don't let people do business like this, will they be able to do business at all?

Hollingsworth needed money and two other lenders had turned him down, so when he got introduced to Potter, an employee of American Finance, he was probably desperate. That's possibly by Potter's offer – to lend Hollingsworth $10,000 in exchange for a kickback of $1,000 – was acceptable to Hollingsworth, who took out the loan at 18% interest, gave Potter the $1,000, and for good measure got his mom to sign onto the loan and mortgage some real estate she owned.

Thereafter, Hollingsworth would make payments on the loan, he said, by either paying or by doing work to repair cars repossessed by American Finance. As to the latter, Hollingsworth at first testified that he was paid by check, which he would endorse over to American Finance.

At one point, Hollingsworth said his account wasn't being properly credited all these payments, and Potter said he'd look into it. At another point, Potter borrowed money from Hollingsworth. At another, Potter took a $500 cash payment over breakfast, and didn't credit the money.

Potter was fired, and American Finance sold its Wisconsin operations to another company about the time that Hollingsworth filed suit, his primary allegation appearing to be that the uncredited payments were a form of interest that made the loan usurious under the WCA. Hollingsworth won by default, presented damages at a hearing, and got the loan rescinded and a judgment for his money.

That's when American Finance started litigating, via motion to reopen, claiming that its failure to answer was excusable neglect. The Court at first reopened the case, then reclosed the case, then had a second hearing on reopening when American Finance claimed newly-discovered evidence: it had found two checks that Hollingsworth claimed he had endorsed to American Finance, but which were not, and also claimed to have found a witness who had offered to testify for pay in favor of American Finance. They also argued that Potter was not an agent of the company.

Despite the back-and-forth and some jurisdictional questions in the Court of Appeals, the case remained closed and in Hollingsworth's favor: Courts don't generally consider “things got lost in the shuffle while we moved offices” to be excusable neglect, agents are agents if they reasonably appear to be one, and Hollingsworth, at the second hearing, said that the checks he had cashed himself had been given as cash payments to Potter.

The only real impact of this case is an unstated one, the consideration of businesses like American Finance. Subprime lenders, “EZ” credit places, pawnshops and check-cashing locations, as well as payday lenders, all exist because people need, or want, money. No indication was given as to why Hollingsworth needed $9,000 at the outset of this case, but Hollingsworth was unsophisticated or needy enough to borrow $10,000 and get only $9,000, and to (for a while at least) suffer through a set of loan circumstances that most people would not put up for.

But that, it seems, is a side-effect of the underbelly of lending. More legitimate lenders have gotten into trouble through practices that seem shady, if are not downright illegal, and even giant mortgage bankers can set up systems that take advantage of loopholes, the greedy, the gullible, and the needy. What is a society to do about those? Ban them outright, as Wisconsin did once to payday lenders, causing an influx of pawnshops? Regulate them through the Wisconsin Consumer Act and similar laws? That's a start, but remember that Courts are frequently suspicious, if not completely hostile, to these laws, and defendants have deep pockets and high-priced lawyers that will keep on going, as they did here. And, remember that when a law like the Wisconsin Consumer Act gets too effectively enforced, a well-heeled but disgruntled defendant can always buy a change in the law.

The WCA and laws like it require that Courts be vigilant, but also open-minded. It's easy to transmute Hollingsworth's predicament to the crises of today: Student loans and foreclosures. How many courts would look at this and argue that Hollingsworth's failure to make payments resulted in him getting a free house, despite his complaints of malfeasance? How many courts would have said that Hollingsworth got money and is required to pay it back?

We have a society where people need money. We have a society where people will lend money in unscrupulous ways. But we have courts that too often refuse to see that the latter is as true as the former.

I view ANY phone call from ANY person as harassment. Be forewarned. (Debt Collection)

To some people, simply getting called by a debt collector is annoying, harassing and abusive.  That's why the various debt collection laws set the bar higher than simply calling before liability may be imposed.

OR DO THEY?

(Ba bum bum.)

That worked better in my mind.

Anyway, the question of what is harassing, abusive or annoying can vary from person to person and judge to judge and jury to jury ad nauseam, so it's helpful to look at some cases and see where we, as a society, are, vis a vis annoying phone calls.

As of March 22, 2013, we as a society were a bit undecided, at least insofar as we as a society declared in the memorandum opinion of Dorris v. Accounts Receivable Management, D. Md. 2013 (March 22, 2013).

Dorris got some calls from Accounts Receivable, claiming some fifteen calls between July 7, 2010 and August 6, 2010.  On one particular call, Dorris talked to Karen, and told Karen to call him the next Monday after 11 or 12.

Dorris then says that Accounts Receivable called him five times in just a few minutes, starting at 12:11 p.m.  Dorris also said that Karen called a number belonging to Dorris' mom, Susan.

Susan talked to Karen and Karen said she was "calling in reference to an account," clarifying in response to Susan's question that the account was "a bill."

That's really all it takes to win an FDCPA case, but there are more allegations and more litigations here, so let's review them all.

On the first Susan-Karen call, Susan tried to get Dorris on the phone to discuss the matter, but Dorris told Susan he didn't want her to discuss it.  So Susan and Karen stopped talking, but, Dorris and Susan alleged that Karen called back:

According to Dorris, at approximately 2:54 p.m., Karen made another call to Susan. During that call, Karen allegedly attempted to settle Dorris' debt for $900 and, while doing so, stated that Dorris was an "asshole" and "arrogant," that he "talked . . . about child support issues," and that he Page 4 "had no intentions of dealing with his debt." After refusing to settle the debt, Susan allegedly contacted Dorris to inform him of the call and, upon Dorris' request, drafted an e-mail summarizing the substance of the alleged call. Thereafter, Dorris contacted ARM to speak with a manager regarding Karen's alleged second call to Susan. 

So Dorris sued for FDCPA violations and related claims like invasion of privacy under state law.

What was undisputed was that the first phone call between Karen and Dorris' mom Susan was a violation of the FDCPA:

The recording of the first call to Susan on July 26, 2010, clearly reflects that Karen stated she was "calling in reference to [an] account" that was "forwarded to [her] office," and when Susan asked whether Karen was calling "about a bill," Karen said Page 11 "yes."  Moreover, at the end of the call, Karen stated that Dorris "[did] not want [Susan] to resolve it." (Id. at 5:19-5:26). ARM's argument that this does not constitute a disclosure of Dorris' debt is unpersuasive. Therefore, pending the outcome of its alternate argument, ARM may be held liable for violating § 1692c(b) during the first call to Susan on July 26, 2010. 

The FDCPA forbidding debt  collectors from talking to third parties about anything but location information. (The Court denied Accounts Receivable the right to rely on the bona fide error defense because Accounts Receivable had not plead it, had avoided discovery related to it, and otherwise made it prejudicial to allow the defense to be raised on summary judgment.)

But the rest of the case was hotly contested.  That second call, for example, by Karen was denied by Accounts Receivable, which survived summary judgment by putting an affidavit in that said there was no record of the outgoing call in its records, creating an issue of fact.

Claims under section 1692b, which deals with the collection of location information, and which were based on the first call to Dorris' mom, failed because -- weirdly -- the first call was ruled not a call seeking location information.  That didn't keep that first call from potentially violating other sections, though, and the second call to Dorris' mom was still a viable claim under those sections (so the ruling gets confusing).

Then we get to the part that interested me: whether numerous calls constitute harassment or annoyance under 1692d.  Dorris hinged his argument on the claim that Accounts Receivable called him "multiple times, about a minute apart, including twice without leaving any voice message."  The records supplied varied: Accounts Receivable claimed one call at 12:12 p.m. that day.  Dorris' Sprint bill said there was one call at 12:20 p.m.  (No explanation for the missing calls was supplied in the opinion.)

The Court denied summary judgment, holding that there was an issue of fact about that for the jury, which leaves us (as a society, remember) at: multiple calls in a short period might be illegal if a jury thinks it is.

If that is harassing, then, the damages might be emotional distress, which is always awardable under the FDCPA, "always" being a term of art, because a claimant must still prove the emotional distress, and court, as always, are distrustful of jurors' abilities to ferret out false claims, so we continue to impose various weird hurdles on anyone whose claims are not for a physical injury:

Dorris alleges that ARM's actions caused him "extreme annoyance and frustration and emotional stress." During his deposition, Dorris (1) described his annoyance with the family discord caused by ARM's alleged violations, (2) testified there was no change in his routine during July 2010, or any other time during that year, and (3) stated that the time he spent addressing ARM's alleged violations constituted his "[p]rimary actual damages" because his time is "everything." ...Moreover, Dorris testified that no other individuals had information to corroborate his annoyance during the time in question. Dorris' lack of supporting medical testimony is not automatically dispositive of this issue as there is no indication that medical corroboration is required to procure compensatory damages on the basis of emotional distress. Dorris' claim for actual damages, however, fails in other respects. None of Dorris' testimony establishes, at a minimum, an impact on his behavior, physical condition, or any other indicator of emotional distress. At best, ARM's alleged acts constituted an inconvenience in Dorris' life, not an actual injury. As a result, Dorris failed to produce evidence  sufficient to preclude summary judgment in ARM's favor.9 Cf. Robinson, 560 F.3d at 240-41 (concluding that the plaintiff "sufficiently articulated and demonstrated the emotional distress she experienced" by presenting evidence that her "mental distress manifested itself as headaches, sleeplessness, skin acne, upset stomach, and hair loss"). 

So under the FDCPA, Dorris was limited to statutory damages, but he still had his state law claims for invasion of privacy, too.  With respect to that, the Court noted that state law (Maryland's state law) required that the communications demostrate either a frequency that indicates harassment itself, or a vicious nature that would show the harassment.  As to the former, two calls doesn't cut it, the Court held (without citation to anything) and then said there was a jury question about whether the second call rose to the required level.

So the wrap-up: multiple calls in a short period might be violations of the FDCPA, but it takes more than two calls to constitute harassment per se, at least in Maryland.

Thanks for not doing your job at all, Courts of Appeal! (Landlord-Tenant law)

Remember a week ago when I noted my continued displeasure with per curiam opinions and how they seemed to get the law wrong and/or screw up other cases?

Guess what? It happened again only maybe worse!  On May 2, 2013, the Court of Appeals issued a one-judge opinion in the case of Wolf v. Snell, 12 AP 1579.  This being a small claims case, the 1-judge appeal is by statute, but that hardly excuses this opinion, which dismayed me greatly.

Here's the background: Wolf rents a house from Snell, for the summer, and gives him a $2000 security deposit.  Wolf also rents some docks from Snell, agreeing he is responsible for damages to those docks.  At the end of the summer, the docks are damaged (beyond repair, the opinion says, although the damages described seem minor in some cases), and Snell says he's keeping the $2,000.  So Wolf sues, claiming that the landlord violated section 100.20 by improperly withholding the security deposit.

Wolf's claim is that there were two contracts -- 1 for the house, 1 for the dock -- and that Snell had no right to withhold the house deposit for damages to the dock.  The circuit court found that there was only one contract, and that the security deposit had been correctly withheld.  The circuit court also found the value of the docks to be $2,085, not the $3,200 in damages the landlord was claiming.

Wolf appealed, and the Court of Appeals first decided to decide without deciding.  (Got that?):

I assume without deciding, that Wolf is correct that the small claims court erred in determining that the parties did not enter into two separate, valid agreements, and that Snell’s withholding from the security deposit the amount of the damage caused to the docks was not wrongful.

The usual reason courts assume without deciding is because the answer doesn't matter, even though courts being courts and lawyers being lawyers, the answer always matters, because down the line some other court is going to look at the ruling and misinterpret it.  (I'm looking at you, Palisades v. Kalal court, which did not bother to decide the standard of review on affidavits submitting business records on summary judgment.)

In this case, though, the "1 contract or 2 question" matters a lot, as will be seen by what the opinion rules.  Beginning by assuming that Snell had no right to withhold the security deposit, the Court concludes that it doesn't matter because Wolf had no damages (the Court said:)

This court has stated that when a landlord retains a security deposit and complies with the notification requirement by providing the tenant with a written statement accounting for any amount withheld from the security deposit, a later determination that the landlord has wrongfully withheld a tenant’s security deposit “will result in a doubling of only that pecuniary loss which remains after an offset for the landlord’s actual damages has been included.” Pierce v. Norwick, 202 Wis. 2d 587, 595-96, 550 N.W.2d 451 (Ct. App. 1996). Snell provided Wolf with an accounting of the amounts withheld from the security deposit. Accordingly, Wolf is entitled to only “that pecuniary loss which remains after an offset” for Snell’s actual damages, which the circuit court found was $2,000. See id.

The problem with that is, it's wrong.  Or at least, not exactly right.

Here's why.

In Pierce v. Norwick, the Court of Appeals held that a landlord who had falsified a claim for damages and wrongfully withheld a $1,000 security deposit was entitled to have the offsetting claims the landlord made.  The landlord proved $889 in damages, and so the Pierce's got $111 in damages, doubled.  As the Court of Appeals explained:

When a landlord complies with the notification requirement and provides a tenant with a written statement accounting for any amount withheld from the security deposit, a later determination that the landlord has violated WIS.ADM.CODE § ATCP 134.06(4)(b) and misrepresented or falsified damages claims will result in a doubling of only that Page 455 pecuniary loss which remains after an offset for the landlord's actual damages has been included. This was the method of calculation applied in this case and we conclude that it was proper.

Pierce at 596.  The Court noted, though, that

If a landlord is found to have fraudulently withheld most or all of a security deposit but has complied with the notification requirement, the resulting award may still approach or equal a doubling of the entire deposit. This protects the rights of tenants to bring these lawsuits, yet encourages landlords to give a fair and accurate accounting of any amount withheld from a security deposit.

Id.  That was an advance from a prior case, Paulik v. Coombs, 120 Wis.2d 431, which held that a landlord who improperly withheld the security deposit had to face a doubling of the award before deducting his/her damages.

Which is why the "assume without deciding" approach doesn't work here.  One of three things is true.  Either:

1. Wolf and Snell had one tenancy agreement, with the $2,000 serving as a security deposit, or

2.  Wolf and Snell had two tenancy agreements, with the $2,000 serving as a a security deposit on the house only, or

3.  Wolf and Snell had two tenancy agreements but the $2,000 was security for both of them.

Here's the factual intro readers get:

In 2011, Snell rented a vacation cottage located in Fremont, WI, to Wolf for the months of May, June, July, August and September. The rental agreement, which was not signed by both parties, provided that Wolf agreed to pay Snell monthly rental fees and provide a $2,000 security deposit, and that Wolf agreed to be responsible for any damages. The parties agree that during the time period in which Wolf rented Snell’s Fremont property, Wolf rented from Snell[2] additional dock sections, which Wolf added to the pier which came with the Fremont property. The receipt provided to Wolf provided that the dock sections were valued at $695 each and that Wolf was “[r]esponsible for any [d]amage.”

That makes it sound like their might be two contracts -- and that is a question of law, which the Court of Appeals would review de novo (although it would be bound by the circuit court's factual findings as to some of those issues.)

So I went to Snell's brief to see if that helped clear up the factual portion, at least.  Here is how Snell summed the facts up:


Mr. James Wolf (“Wolf”) rented a vacation cottage on Partridge Lake in Fremont, Wisconsin from the respondent, Mr. Dan Snell (“Snell”) in the summer of 2011. (Supp. App. 101; R.15:1) The rent was

$1,875.00 per month and Wolf made a $2,000.00 deposit. (R.42:9). As rented, there was a dock with three sections. (R.42:22) Wolf added some additional wooden sections to the existing three section aluminum dock. The tenant’s wooden dock addition floated into Partridge Lake causing a neighbor to complain to Snell. (R.42:23) Wolf then decided to rent six (6) more aluminum sections from Snell, for the remaining two months of Wolf’s rental period. The additional aluminum sections of dock were then added to the existing pier

But here is how Wolf's lawyer saw the same facts:

Appellant James Wolf and Respondent Dan Snell entered into an agreement on April 20, 2011 to rent Mr. Snell’s property at 1424 Wolf River Drive, Fremont, WI, 54940 (“the Premises”) (Record 15; 42:8). Mr. Wolf moved into the Premises on May 1, 2011 (Record 42:8). Mr. Wolf paid a security deposit of $2,000 to Mr. Snell (Record 15:1). Over two months later, on June 28, 2011, Mr. Wolf and Mr. Snell entered into a separate agreement under which Mr. Wolf agreed to rent from Mr. Snell six sections of aluminum dock for $1,000 for the months of July and August (Record 20).

(Emphasis added.)  I don't have easy access to the appendices, but assuming those facts are undisputed, a Court could easily find whether there are 1 or 2 agreements here, and whether the second agreement was to use the $2,000 as security.  Both parties, for example, agree that at least six additional sections were added on, later, but neither says which of the sections was the damaged one -- the original or the later-added.

Here's another wrinkle:  Snell didn't just withhold for the docks.  Snell also added to the statement of reasons for withholding the $2,000 other items.  From Wolf's brief:

After Mr. Wolf vacated the premises, Mr. Snell withheld the entire $2,000 security deposit and sent a letter dated October 13, 3 2011 to Mr. Wolf demanding an additional $1,203.38 in alleged damages (Record 22:1). Mr. Snell included in that amount his guesses for the value of a non-functioning lawnmower (Record 42:57); the value of his labor to fix a screen door (Record 42:58); and the value to replace rather than repair a narrow table (Record 42:41). Mr. Snell also included amounts for hypothetical repairs that he has not undertaken, including replacement value of a pheasant print and frame and the above-mentioned table (Record 42:58)

The circuit court did not award any of those damages; it found Snell damaged only to the extent of the docks.

So, how are we to know whether Snell withheld the $2,000 to pay for the docks, or for what Wolf's lawyer called "hypothetical repairs?"  If it was the latter, and the circuit court disallowed them, then the claim was different.  If that was the case, then Wolf arguably had $1,203.38 improperly withheld, which should have been doubled to $2,406.76 -- and then had the $2,085 in damages withheld for the docks, resulting in an award to Wolf (plus his attorney's fees.)

So the issue of whether there was one contract or two is extremely significant, because if there were two contracts, then the $1,203.38 in disallowed damages seem to have been improperly withheld (as not awarded) plus the remainder was improperly withheld (as not allowed by contract.)  If there was one, then the improperly withheld amounts may have been zero, or may have been $1,203.38.

See why I hate opinions like these? I hope this case goes up to the Supreme Court of Wisconsin.

I'll take "Servicer Or Debt Collector" for $500, Alex. (Fair Debt Collection Practices Act)

Is a mortgage servicer a debt collector under the Fair Debt Collection Practices Act (FDCPA)?

YES!

NO!

WAIT, WHAT WAS THE QUESTION AGAIN?

In yet another twist on mortgage foreclosure law and the FDCPA -- two sets of laws that work probably not at all as they were designed to do, and both of which work exceedingly well in some respects -- a case fresh out of Texas and only four days old says no way, you can never prove a servicer is a debt collector.

The case, Janos v. Wells Fargo Bank, S.D. TEX April 26, 2013, is a memorandum order dismissing Janos'  complaint against Wells Fargo arising out of what Janos complained were problems with his forbearance agreement.  Janos said Wells Fargo, as the mortgage servicer, misapplied to forbearance payments, violating the FDCPA and breaching the forbearance agreement.  Wells Fargo moved twice for dismissal on 12(b)(6) grounds, or for judgment on the pleadings, those being very different things, but okay.  (I assume without knowing that the first motion was mooted by an amendment.  I could check that out, but I'm lazy.)

(I mean I AM EFFICIENT.)

The Court, relying on the Twiqbal standards that completely upended federal pleading and practice for no reason whatsoever -- seriously, have you ever looked at a sample complaint in a federal case? The forms suggested by the government itself can be found here, and I'm pretty sure none of them stand up to Twiqbal -- said that Janos' complaint failed to provide particulars of pleading, mostly because it sort of casually alleged that Wells Fargo was a debt collector, rather than alleging facts.  Whether or not someone is a "debt collector" is a legal conclusion that relies on the facts alleged.  So, for example, this:

"Wells Fargo is a debt collector"

is not a very good allegation, especially in federal court.  This:

"Wells Fargo services plaintiff's mortgage loan," 

is better, while this:

"Wells Fargo services plaintiff's mortgage loan and obtained the rights to service that loan after the date Wells Fargo claims a default existed"

is even better, what with all the facts. You'll probably want to throw that debt collector line in there anyway, as judges are no less lazy... EFFICIENT... than me, and will want to see the conclusion.

(Did you ever wonder why we "reallege and incorporate the foregoing X paragraphs as though set forth fully at this point," for example? There's no reason to do it, especially if you sequentially number paragraphs, but once I tried using my common sense and not doing it and faced a motion to dismiss, so now I just do it because lawyers are dumb but I don't want to spend my client's money proving that.)

More seriously than simply not pleading facts, Janos lost, the Court in this case said, because mortgage servicers are not debt collectors:

Wells Fargo, as the mortgage servicer, cannot be considered a "debt collector" under the FDCPA,... Janos alleges in his Second Amended Complaint, and there is nothing in the record to the contrary, that Wells Fargo was/is the mortgage servicer of his loan. Mortgage servicers are not considered "debt collectors" under the FDCPA. See Montgomery v. Wells Fargo Bank, N.A., 459 Fed. Appx. 424, 428 n. 1 (5th Cir. 2012) (plaintiff's "FDCPA claim fails because mortgage lenders are not 'debt collectors' within the meaning of the FDCPA."); Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985) ("a debt collector does not include the consumer's creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned"). Because Wells Fargo was the mortgage servicer on Janos' loan, because Janos has not alleged any facts that would support a conclusion that Wells Fargo was a debt collector within the meaning of the FDCPA, and because Janos has not alleged any facts - only mere conclusions - in support of his claims under the FDCPA, Janos has not stated a plausible FDCPA claim against Wells Fargo within the meaning of Twombly and Iqbal.

The idea that mortgage servicers are never debt collectors (or that lenders are not debt collectors, period) seems anathema to me, given that Fairbanks was a debt collector in the Seventh Circuit's Schlosser case, and that debt was only believed to be in default, so I did a search for the terms "Fair Debt" and "mortgage servicer" and "debt collector" on only federal appellate courts, and I came up with two of them, neither cited by the Janos court.

The first was a Fifth Circuit decision from 2007, Lozano v. Ocwen Federal Bank, Fsb, 489 F.3d 636 (5th. Cir., 2007).  That case, like Janos, involved questions of forbearance agreements and debt collection violations, but said only that the circuit court dismissed the FDCPA claim against the servicer wrongly, because the plaintiffs weren't given notice of the sua sponte decision to do so.

The second was Bailey v. Security Nat. Servicing Corp., 154 F.3d 384 (C.A.7 (Ill.), 1998), a thoughtful (as expected) decision from the Seventh Circuit which considered whether a servicer who took over a loan that had been in default and then was subject to a forbearance agreement was a 'debt collector,' and decided no, at least not so long as the servicer was working the forbearance agreement, not the original defaulted debt, and the forbearance wasn't in default.  (The Court also noted that the letter in question did not demand payment at all, and seemed to view the case as a trumped-up putative class action.)

Then there is the Perry case cited in Janos. That case begins, amazingly, with this paragraph:

The creative efforts of plaintiff Robert Perry, a lawyer, and the intransigence of ten defendants turned this relatively simple breach of contract/tort case involving the sale of a residence into a enormously expensive brouhaha for all of the parties. Robert and Linda Perry purchased a $70,000 home and learned that part of their driveway and garage encroached upon an underground utility easement. They sought to rescind their earnest money contract and to that end instituted suit and asserted seventy-six claims against ten defendants. The defendants eventually secured a release of liability for the encroachment at a cost of $100, but the Perrys continued their suit. The parties have collectively spent approximately $500,000 in legal fees prosecuting and defending this suit.

WOW. I don't even care what the case is about: I've got to read this.  But while the Perry case is fascinating in its own right, and can be found at 756 F.2d 1197, the pertinent part of it for this post is this:

The legislative history of section 1692a(6) indicates conclusively that a debt collector does not include the consumer's creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned. ...In this case, the FDCPA is inapplicable, since neither Hammond nor FNMA is a debt collector. Hammond sold the Perry loan to FNMA approximately 1 1/2 months after the closing and approximately 2 months before the Perrys were in default. After Hammond sold the loan, it continued to service the loan for FNMA. Thus, FNMA was a bona fide assignee of a debt, and Hammond was a bona fide mortgage servicing company. The district court correctly granted Hammond's and FNMA's motions for directed verdicts on this claim.

That is not a blanket prohibition on servicers being debt collectors, and is in accord with the Seventh Circuit's ruling that it's the underlying status of the debt that matters.  Given that servicers play a crucial role in what laughingly passes for foreclosure litigation these days, and given that servicers have a complicated role in the next big wave of litigation -- student loan lenders -- it is important to remember that there are very few blanket rules in the law, and it is more important to remember that there is no blanket prohibition on servicers being subject to the FDCPA.

Thanks for not fully doing your job, appellate courts! (Wisconsin Consumer Act)

Quick, you lawyers out there: what are the criteria the Court of Appeals considers when deciding whether to publish an opinion?

If you said "when it criticizes an existing rule, identifies a conflict between prior decisions, or decides a case of substantial and continuing public interest," congratulations! You are aware of a statute that rarely gets followed.

If, instead, you said "Whenever we aren't too busy to delegate everything to an unelected, anonymous staff attorney who sometimes gets it right," then congratulations (?) you are aware of how it seems the Court of Appeals operates in Wisconsin.

Only about 16% of all Wisconsin Court of Appeals' opinions get published -- 51% of the 3-judge opinions, overall -- which means that 16% of the Court of Appeals' output is considered persuasive, at best -- and unmentionable, at worst, unmentionable like the per curiam opinion in Credit Acceptance Corp. v. Shepherd, decided in February, 2013, but not mentioned anywhere because, remember, it's a per curiam opinion that dare not speak its name amongst polite company.

In Shepherd, the basic facts are: Credit Acceptance sued Shepherd for a "deficiency judgment... pursuant to a retail instalment contract," and got a default judgment.  Shepherd then moved to reopen the case, alleging the complaint was deficient under Wis. Stats. Sec. 425.109, Stats., and that the complaint also had an incorrect interest rate amount on it, saying 25% instead of 19.9%.  Shepherd also filed a motion seeking fees.

When the Court reopened the case, Credit Acceptance voluntarily dismissed its complaint, and the Shepherd's sought fees, ultimately being awarded nearly $6,000 in fees.  Credit Acceptance appealed, and the Court of Appeals dealt a stunning blow to creditors on behalf of consumers and their lawyers everywhere.

HA HA JUST KIDDING.  While Shepherd one, the opinion, as a per curiam opinion, is completely useless and may not be cited under Wisconsin law, which is one reason I'm highlighting it here: if enough people read this (all both of you!) then maybe judges will be aware that the prevailing view of nearly everything they know about the Wisconsin Consumer Act is wrong.

Let's start with "prevailing party."  There's a lot of talk about who is or is not a "prevailing party" under the Wisconsin Consumer Act.  The usual language used is whether a party obtained something of significant benefit through the litigation, but even that has its wrinkles, as courts never agree on what might be a significant benefit.

The Court of Appeals decided that you have to show both a violation of the Act and a significant benefit achieved through your litigation.  As to the first:

here there is no question of fact regarding CAC's failure to attach a copy of the contract to the complaint. ....CAC argues that a pleading defect does not constitute a violation of the Act. Rather, WIS. STAT. § 425.109 prohibits the court from entering a judgment on a complaint that does not have a copy of the contract attached. To say that the statute does not create a duty for the plaintiff is an exercise in semantics. A plaintiff seeking a judgment that cannot be granted unless the contract is attached to the complaint has an obvious obligation to attach the contract to the complaint. CAC violated the Act by filing the defective complaint.

So there was a violation.  Then, on to "significant benefit":

Attorney fees and costs are awarded in cases in which the creditor has not "fully complied with Chapters 421-27." Id., ¶15. The requirement to attach a copy of the contract to the complaint in WIS. STAT. § 425.109(3) fits that requirement. 

You know, or not.  The Court doesn't really discuss what the "significant benefit" might be, although it tried:

First, failure to attach the contract to the complaint is more than a technical, procedural violation. It is necessary to determine the amount of a deficiency. Second, a creditor might simply decide not to, or no longer be able to, proceed with a new case. In this case, for example, CAC offers no explanation for its failure to file an amended complaint with the contract attached, suggesting that perhaps it has no copy of the contract. If the creditor is unable to locate the contract, the consumer has a complete defense under WIS. STAT. § 425.109(1) (h). Third, as suggested by Community Credit, the focus is not on how the Act was violated, but whether the consumer obtained a significant benefit because of the violation. 221 Wis. 2d at 774. Finally, the Act protects customers against "unfair, deceptive, false, misleading and unconscionable practices by merchants." WIS. STAT. § 421.102(2)(b). The remedies set forth in the Act aim to guarantee compliance with its provisions. See First Wis. Nat'l Bank v. Nicolaou, 113 Wis. 2d 524, 533, 335 N.W.2d 390 (1983). The practice of filing defective complaints and voluntarily dismissing only if the defendant calls attention to the defect constitutes an unfair, misleading, or unconscionable practice and a defendant defending against such practices should be made whole.

So if you are keeping score, that is two complete failures to be a benefit achieved by the litigation: neither the failure to attach a complaint nor the possibility that a creditor cannot refile are benefits "achieved by the litigation".  That is then followed up by simply restating the rule ("Third, as suggested...") and then by immediately restating or revising the rule: the final couple of sentences suggest that the focus is not on whether a benefit was obtained at all, but on whether the practice is unfair or unconscionable, which is an entirely different right afforded by the Act.

But let's not dwell on whether a per curiam opinion either attempted to announce a new rule of law or criticized or identified a conflict with existing law! That is for the publication committee.  Let's instead focus on whether a per curiam opinion was critical of existing case law:

Citing Rsidue, L.L.C. v. Michaud, 2006 WI App 164, ¶19, 295 Wis. 2d 585, 721 N.W.2d 718, CAC argues that the statute merely imposes pleading requirements on creditors and the statute does not give rise to an affirmative claim or defense for the consumer under the Act. Rsidue draws a distinction between matters of procedure and substantive legal principals, and notes that procedural deficiencies can typically be cured by filing an amended complaint or refiling the action. Id. 

Fair enough. What Rsidue actually said was:

By contrast, although a failure to comply with the pleading requirements under § 425.109(1) might hinder a creditor's ability to obtain a judgment against a consumer, see § 425.109(3), the creditor could typically cure such a pleading deficiency by amending the complaint or re-filing the action.

Rsidue has typically been read by courts and creditors as holding that there is no substantive right to sue for a pleading or technical violation of the Wisconsin Consumer Act.  That is an overreach: the holding in Rsidue was simply that section 425.109 did not apply to assignees of creditors, making the rest of the case largely seem like dicta if that still existed, so Shepherd would be an important case limiting the scope of Rsidue (which was a published opinion), only Shepherd is unpublished and per curiam and so it can't even be cited in court.

(But maybe you could cite to this blog as a learned treatise? Someone should try that.  Not me. I can't cite to myself.)

I'm not the only one who finds Rsidue unpersuasive:

Here the circuit court rejected that analysis, finding persuasive this court's unpublished opinion in Auto Cash Title Loans of Wisconsin, Inc. v. Webster, No. 2009AP676, unpublished slip op. (WI App Feb. 9, 2010). We agree. ¶8 As noted in Webster, Rsidue did not involve any issue of costs or attorney fees under WIS. STAT. § 425.308(1). Rather, this court's primary holding Page 5 was that the Consumer Act's pleading requirements did not apply to Rsidue because it did not come within the Act's definition of a creditor. Rsidue, 295 Wis. 2d 585, 114. The discussion about claims and defenses was in response to the consumer's argument that he was entitled to the Act's protections because Rsidue was an assignee of the creditor. Id., 118. The fee shifting provision of the Act, § 425.308, refers to neither claims nor defenses. Therefore, the portion of Rsidue on which CAC relies upon is quite limited.

Got that? Rsidue was limited by an earlier unpublished (and therefore not binding) Court of Appeals case, so the circuit court here decided it didn't want to abide by Rsidue, a published Court of Appeals decision, because it found more persuasive a later unpublished Court of Appeals decision, which apparently is okay because those two apparently conflicting decisions are harmonized by this unpublished, per curiam opinion.

So here is your bottom line:  Shepherd, alone among Wisconsin Consumers, has a clear right to attorney's fees when a creditor files a complaint that is not in compliance with section 425.109, Stats., and then dismisses the case voluntarily.  The rest of you? You're stuck with Rsidue, unless you can convince a trial court to ignore a published decision and follow that Webster case.