A Utah federal district court recently ruled in two cases that the Petition Clause of the First Amendment of the U.S. Constitution provides immunity to debt collectors from FDCPA claims.  The two cases are Holmes v. Crown Asset Management, LLC and Reyes v. N.A.R. Inc. and Olson Associates, P.C.  Both decisions were issued by Judge Howard C. Nielson, Jr.

In both cases, the defendants had initially filed lawsuits in Utah state court to collect the underlying debts.  In Holmes, the state court ruled in favor of Crown Asset Management which had purchased the debts from a credit card issuer.  In Reyes, after filing the state court action, the defendants, a debt collector hired by the creditor and a law firm hired by the debt collector, sent the plaintiff a settlement offer that included a proposed confession of judgment.  The plaintiff struck the confession language and returned the settlement agreement to the defendants but the parties ultimately did not reach a settlement.  The plaintiffs in both cases subsequently filed lawsuits in federal district court alleging violations of the FDCPA and Utah law.

In both cases, the court initially addressed the question whether the Petition Clause provides immunity from FDCPA claims. The Petition Clause provides that “Congress shall make no law…abridging…the right of the people…to petition the Government for a redress of grievances.”  According to the court, “a lawsuit to recover a debt is a petition for redress of grievances within the meaning of Petition Clause immunity.”  Thus, the court  concluded that the Petition Clause provides immunity from FDCPA lawsuits based on state court collection actions except where the collection action is deemed a “sham petition.”

After reaching this conclusion, the court analyzed the facts in the two cases as follows:

• In Holmes,  the plaintiffs claimed that the defendant debt buyer violated the FDCPA and state law by filing the state court lawsuits without registering under the Utah Collection Agency Act (UCAA).  The court first noted that the defendant had prevailed in the state court actions and cited language from a U.S. Supreme Court decision stating that “’a winning lawsuit is by definition a reasonable effort at petitioning or redress and therefore not a sham.”  The court then stated that even if the defendant had not prevailed, it would still have concluded that the state court lawsuits were not sham petitions and thus protected by the Petition Clause because the defendant could have reasonably believed it was not required to register under the UCAA to file a collection lawsuit.  The court found it was unclear under the UCAA whether a business that was collecting debts on its own behalf or a business involved in collections that was not Utah-based was subject to the registration requirement.  Due to the absence of clear statutory language, the court was unwilling to construe the UCAA to limit the defendant’s access to the courts.  Noting that it was not deciding whether the NCAA in fact required the defendant to be registered to sue in state court, the court found that because the defendant’s lawsuits were protected by the Petition Clause, it only needed to determine if the defendant reasonably could have believed it was not required to register.  Accordingly, the court dismissed the plaintiffs’ FDCPA claims and declined to exercise supplemental jurisdiction over their state law claims.
• In Reyes, the plaintiff claimed that the defendants violated the FDCPA and state law by including a percentage-based collection charge in the amount sought to be collected in the state court action and by including a confession of judgment in the proposed settlement agreement.  The plaintiff argued that Utah law did not permit the defendants to recover a collection fee because the agreement creating the underlying debt did not satisfy the requirements of Utah law for charging a collection fee.  After reviewing the relevant provisions of Utah law, the court found support for the defendants’ position that they had satisfied such requirements.  As it did in Holmes, the court noted that it was not deciding whether they had in fact satisfied such requirements, and that because the defendants were protected by the Petition Clause, it only needed to determine whether they could have reasonably believed that they had complied with Utah law.  The court concluded that the defendants could have reasonably held this belief and as a result, could have also reasonably believed that their attempt to recover collection fees did not violate the FDCPA because it was “permitted by law.”  In addition, having found the defendants actions to be objectively reasonable, the court was unable to find that the defendants had used false, deceptive, or misleading means to recover the fees in state court in violation of the FDCPA.  With regard to the plaintiff’s claim that the defendants violated the FDCPA by including a confession of judgment in the proposed settlement agreement, the court first indicated that it was uncertain whether Petition Clause immunity extended to a settlement offer that was not accepted nor approved by the court.  The court determined that it did not need to decide this issue because the plaintiff had failed to establish that the confession of judgment was prohibited by Utah law.  Accordingly, the court dismissed the plaintiff’s FDCPA claims and declined to exercise supplemental jurisdiction over her state law claims.