Royal Financial Group, LLC v. Perkins, 414 S.W.3d 501 (Mo. App. 2013) Transfer to Supreme Court Denied

Aug 20, 2013

OUTCOME: Appeals Court Finding for Consumer against Debt Buyer

This case has far reaching positive consequences for consumers. This was the first FDCPA case that the Missouri Court of Appeals decided and has established a viable threat of FDCPA liability to debt ... buyers attempting to obtain default judgments, by bulk filing unsubstantiated, undocumented cases, a not uncommon business practice in the debt buying industry. The Court of Appeals held that in a matter of first impression, that plaintiff’s evidence was sufficient to support her FDCPA claim and the trial courts judgment for the debt buyer was against the weight of the evidence. The trial Court was reversed and remanded for entry of judgment and an award of statutory damages, attorney’s fees and costs. Royal filed a petition against Perkins alleging breach of contract In support of its petition, Royal asserted that it was an assignee of Chase Manhattan Bank and attached a boilerplate cardholder agreement with the words “Chase Manhattan Bank” handwritten at the top of the first page. Nothing in the document identifies the lender, borrower, or amount of charges, and no names or signatures appear. Perkins hired counsel and defended the action, thus requiring Royal to produce “back-up documentation” supporting its claim. Concurrently, Perkins filed a counterclaim alleging that Royal violated the FDCPA. In her petition, Perkins described Royal’s standard pattern and practice as follows: Discovery ensued and, in response to Perkins’s request for admissions, Royal admitted, in sum, that: it bought the alleged debt by assignment from a seller other than Chase Manhattan Bank; did not possess evidence of any previous assignment(s); the previous seller made no representations as to the accuracy, completeness, or enforceability of the alleged debt; and Royal possessed no documentation whatsoever establishing Perkins’s obligations under the purported cardholder agreement as alleged in Royal’s petition. Perkins also submitted to Royal a request for production of documents broadly soliciting some memorialization of her alleged obligations or calculation of amounts outstanding. Royal failed to produce any documentation beyond the previous seller’s portfolio purchase agreement. Notably, Royal neglected to produce any back-up documentation purportedly available under that agreement for purposes of legal enforcement of the accounts purchased thereunder. Finally, Perkins made several attempts to depose Royal’s corporate representative, eventually resorting to motions to compel and for sanctions. Royal failed to produce its witness on multiple occasions, and ultimately the trial court dismissed Royal’s petition for failure to comply with discovery. The court held a hearing on Perkins’s counterclaim. Royal presented no evidence. Perkins appeared by counsel and essentially relied on the existing record (i.e., Royal’s petition, admissions, and responses to discovery) as conclusive evidence of Royal’s liability under the FDCPA. Perkins presented no further evidence or direct testimony. The court found for the debt buyer stating that the record was insufficient to support findings that Royal violated the FDCPA. The appelate Court reversed finding Royal violated the FDCPA in that it “Took action that could not legally be taken” in violation of §1692(e) (5) the record clearly demonstrates that Royal could not legally prosecute its claim and never had any intention to do so. As such, the petition was an empty threat of further action that could not legally be taken or that was not intended to be taken. Recalling that the purpose of the FDCPA is to deter abusive debt collection practices, we see no meaningful distinction, from the perspective of an unsophisticated consumer, between an empty threat to file a lawsuit and empty threat to actually prosecute one once filed. Both tactics violate the spirit and letter of section 1692(e) (5).