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Username: Christine

Post Number: 1658
Registered: 09-2002
Posted on Tuesday, November 25, 2003 - 10:00 pm:   Edit Post Delete Post Print Post    Move Post (Moderator/Admin Only)


Case No. 03 C 1123


2003 U.S. Dist. LEXIS 20065

November 10, 2003, Decided
November 13, 2003, Docketed

DISPOSITION: [*1] Defendants' motion to dismiss denied.

COUNSEL: For MOISES CARBAJAL, plaintiff: Cathleen M. Combs, Daniel A. Edelman,
James O. Latturner, Tara Leigh Goodwin, Albert F Hofeld, III, Thomas Everett
Soule, Edelman, Combs & Latturner, Chicago, IL.

For GEORGIA REDD, RON BUTLER, plaintiffs: Cathleen M. Combs, Daniel A. Edelman,
James O. Latturner, Albert F Hofeld, III, William Byron Crane, Thomas Everett
Soule, Edelman, Combs & Latturner, Chicago, IL.

defendants: Robert MacDonald Moye, Dawn L Johnson, Bell, Boyd & Lloyd, Chicago,

JUDGES: MATTHEW F. KENNELLY, United States District Judge.




MATTHEW F. KENNELLY, District Judge:

The plaintiffs in this case, Moises Carbajal, Georgia Redd, and Ron Butler,
have sued the defendants, Capital One, F.S.B., Capital One Services, Inc., and
Westmoreland Agency, Inc., for violations of the Fair Debt Collection Practices
Act, 15 U.S.C. 1692e & g. Defendants have moved to dismiss plaintiffs' third
amended complaint for failure to state a claim. For the reasons stated below,
the [*2] Court denies defendants' motion. (On October 21, 2003, the Court made
an oral ruling on the motion, and as indicated at that time, now issues the
ruling in written form.)

On a motion to dismiss for failure to state a claim, the Court reads the
complaint liberally, granting the motion only "if it appears beyond doubt that
the plaintiff can prove no set of facts in support of his claim which entitles
him to relief." Conley v. Gibson, 355 U.S. 41, 45, 2 L. Ed. 2d 80, 78 S. Ct. 99

Most FDCPA cases involve the dunning of a debtor, by letter or otherwise, by
a collection agency. This case is somewhat is different. Defendant Capital One,
FSB is a major issuer of credit cards. It also regularly acquires delinquent
credit card accounts from other issuers and attempts to collect them. This case
concerns one of the ways in which Capital One n1 does that. It sends to the
debtor what amounts to a solicitation to pay off the debt by obtaining a Capital
One Visa card. According to the solicitation, once the debtor obtains the credit
card, his prior debt will be transferred to the new credit card account, and no
interest will be charged on that part of the debt. In addition, [*3] interest
and fees that have accrued since the debt was charged off by the prior creditor
will be forgiven. The solicitation states that once Capital One receives the
debtor's first payment, credit bureaus will be notified that the charged-off
debt has been paid in full. However, if the debtor does not make a payment for
three billing cycles, the new Visa account will be closed, and collection
activities will resume, including the previously-accrued interest and fees.
Capital One's solicitation also contains several other documents: a letter from
the prior creditor or collection agency further explaining the offer, and the
disclosures legally mandated by the Truth in Lending Act and other laws in
connection with the offer of a new credit card.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n1 We use "Capital One" to refer to all the defendant, which are alleged to
be affiliated entities that act together in making the solicitations.

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

Plaintiffs allege that Capital One is a debt collector within the meaning of
the FDCPA. The FDCPA requires that in a debt collector's [*4] initial
communication with a debtor, or within five days thereafter, the collector must
send a written notice to the debtor containing the amount of the debt; the name
of the creditor; a statement that unless the debtor disputes the debt's validity
within thirty days it will be assumed to be valid; a statement that if the
debtor advises the collector in writing of a dispute within thirty days, the
collector will obtain verification of the debt and mail it to the debtor; and a
statement that upon request, the collector will provide the original creditor's
name if different from the current creditor. 15 U.S.C. 1692g(a). This is
referred to in FDCPA lingo as a "validation notice."

The validation notice was contained on the reverse side of the solicitation
letter sent by from Capital One. The front side of the letter contained a
statement in capital letters, though smaller than a good deal of the other print
on the page, which stated:


On the reverse side there were a series of questions and answers [*5] regarding
the credit card offer. At the top of the page, in smaller-point type than the
rest of the page, but enclosed in a box, was the validation notice, which read
as follows:

If this is the first letter you have received from us, please be aware
that this communication is from a debt collector, and it and others
from us are an attempt to collect a debt. Any information obtained
will be used for that purpose. Once you accept this offer the debt
will be owed to Capital One. Unless you dispute the validity of all or
part of the debt within 30 days after receipt of this notice, we will
assume the debt is valid. However, if you notify us in writing within
the 30-day period, we will mail a copy of the verification of the debt
or the judgment to you and will provide you with the address of the
original creditor for this debt. Please remember that even if you make
a payment, you still have the remainder of the 30 days to dispute your
debt. If this is not the first letter you have received from us
regarding this debt, please be aware that you still have 30 days form
receipt of our original letter to you to dispute the debt.

See, e.g., Third Amended Complaint, Ex. A. [*6] Plaintiffs claim that the
validation notice was obscured or overshadowed by the remainder of the
solicitation and accompanying forms in violation of 1692g, and that it was
misleading in violation of 1692e.

The statute does not require that the validation notice be placed on the
front of the collector's initial letter. E.g., McStay v. I.C. System, Inc., 308
F.3d 188, 191 (2d Cir. 2002); Blackwell v. Professional Bus. Svcs. of Georgia,
Inc., 526 F. Supp. 535, 538 (N.D. Ga. 1981). If the notice is on the back of the
letter, however, there must be a prominent reference to it on the front, which
must advise the debtor, at a minimum, that there is "important information" on
the reverse side of the letter. McStay, 308 F.3d at 191; Riveria v. MAB
Collections, Inc., 682 F. Supp. 174, 177 (W.D.N.Y. 1988); Ost v. Collection
Bureau, Inc., 493 F. Supp. 701, 702 (D.N.D. 1980).

But even if there is a sufficiently prominent disclosure on the front of the
letter directing the debtor to a validation notice on the back, that is not the
end of the story. The FDCPA, as interpreted by the courts, imposes an additional
[*7] requirement that is at issue in this case: the validation notice cannot be
obscured or overshadowed by the collector. As the Seventh Circuit has stated,
the collector "may not defeat the statute's purpose by making the required
disclosures in a form or within a context in which they are unlikely to be
understood by the unsophisticated debtors who are the particular objects of the
statute's solicitude." Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997). The
validation notice "cannot be so hidden as to preclude all but the most
persistent or lucky from finding it." Riveria, 682 F. Supp. at 177 (citing
cases, including Basham v. Finance America Corp., 583 F.2d 918, 926 (7th Cir.

To grant defendants' motion to dismiss for failure to state a claim, the
Court would have to conclude, as a matter of law, that the validation notice
sent by Capital One complied with the statute. The Court cannot draw such a
conclusion at this point in the case. See Marshall-Mosby v. Corporate
Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000) (issue of whether
collection letter is confusing to unsophisticated consumer is question of [*8]
fact on which plaintiff is entitled to present evidence). Plaintiffs have a
viable claim that the validation notice was obscured in a way that violated the
FDCPA. Their contention is that, among other things, the validation notice was
buried in a flurry of papers and other disclosures, and the advice on the front
of the letter to look at the back was not sufficiently prominent, and the notice
itself was not sufficiently prominent in its format. The Court recognizes that
some (though not all) of what we have referred to as a "flurry of papers" were
disclosures mandated under TILA and other statutes. But defendants made a choice
to attempt to collect the debt by offering a new credit card. They have offered
no authority supporting the proposition that the requirement they thereby
assumed to comply with TILA can be used to diminish their obligations under the
FDCPA. In sum, plaintiffs have stated a claim that the validation notice was
obscured in violation of 1692g.

Plaintiffs also attack the language of the validation notice. The notice
advises the debtor that "even if you make a payment, you still have the
remainder of the 30 days to dispute your debt." Plaintiffs argue that this [*9]
is misleading. If the debtor signs up for a new Capital One Visa card, his or
her old debt is transferred to the credit card. According to plaintiffs, this
means the debt becomes a new contractual obligation and thus is not truly
subject to defenses against enforcement that the debtor might have had vis-a-vis
the original creditor. For this reason, plaintiffs say, the letter's claim that
the debtor can pay and still dispute the debt is misleading: the right to
dispute the debt, they say, is effectively meaningless given the means used by
Capital One to collect it.

In their reply memorandum, defendants dispute with plaintiffs' contention,
saying that the debtor can still dispute the old debt even after it is
transferred to a Capital One Visa card. But this is neither apparent from the
face of the complaint nor inherent in the arrangement proposed by Capital One in
its solicitation. At this point, it is only fair to say that it is not entirely
clear what exactly the status of the old debt is following the debtor's
acceptance of Capital One's offer, and more specifically what would happen if
the debtor obtained a Capital One Visa card, thereby transferring his old debt
to a new obligation, [*10] and then decided to dispute the "old" debt. In the
present context -- a motion to dismiss for failure to state a claim -- the Court
has way of knowing how defendants actually treat such disputes if and when they
are raised. Based on plaintiffs' allegation that the disclosure is misleading,
which we must take as true at this stage of the case, the Court concludes that
plaintiffs have stated a claim that the validation notice is misleading by
advising the debtor of purported "rights" that the collector has rendered
effectively meaningless.


For the reasons stated above, the Court denies defendants' motion to dismiss.


United States District Judge

Date: November 10, 2003

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