LVNV Funding, LLC v. Bills, No. 390-5-09 Rdcv (Cohen, J., Feb. 19, 2010)

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                                                 STATE OF VERMONT
                                                  RUTLAND COUNTY

LVNV FUNDING, LLC                                                   )                      Rutland Superior Court
                                                                    )                      Docket No. 390-5-09 Rdcv
v.                                                                  )
                                                                    )                      on appeal from
DALE BILLS                                                          )                      Docket No. 1048-9-08 Rdsc


                                 DECISION RE: SMALL CLAIMS APPEAL

           The question presented in this small claims appeal is whether the small claims court

abused its discretion by refusing to approve a stipulated judgment unless plaintiff—a

collection agency—first submitted documentary proof that it purchased this particular debt

from the originating lender.

           The following facts are established by the record. Plaintiff LVNV Funding filed a

small claims complaint alleging that defendant Dale Bills owed almost $4,000 on a Sears

charge account. Defendant filed an answer in which she disputed the amount of the claim.

The matter was accordingly set for a merits hearing.

           The parties settled their dispute in mediation shortly before the commencement of the

merits hearing. The record shows that plaintiff agreed to reduce the amount of the total debt

to $963. In exchange, defendant agreed to pay $100 up front and to consent to the entry of

judgment against her in the amount of $863.

           The parties then asked the small claims court judge to approve the settlement

agreement. The small claims court judge refused to do this unless plaintiff first provided

evidence of the “contract” and the “assignment,” which this court takes to mean evidence of

any credit card agreement that may have existed, and proof that the debt had been sold by the

originating lender to this particular collection agency.
        Plaintiff’s attorney protested that the small claims court was going too far by

requiring the presentation of evidence, since the parties had agreed to settle the matter. The

attorney asserted that the only question before the court was whether the parties had

voluntarily entered into the agreement.

        The small claims court judge responded by advising defendant that she had entered

into an agreement with a “third party” creditor, and asking defendant whether she was

“convinced that you owe that particular plaintiff money.”        Defendant responded in the

affirmative, but conceded upon further questioning that she had no documentary evidence to

support that belief.

        The small claims court judge thereafter refused to approve the settlement.         She

explained that she would not give the judgment her “stamp of approval” because the parties

did not have “the proper documentation.” She stated that the parties were free to enter into a

contract between themselves, but that she would not sanction the agreement without some

proof that the plaintiff had been assigned the debt. She therefore dismissed the complaint,

and this appeal followed.

        The underlying issue here was a concern on the part of the small claims court judge

that plaintiff did not have standing to collect this particular debt. The concern arose because

the complaint did not include an allegation that the collection agency had purchased the debt

from the originating lender. It therefore appeared that the collection agency was a “stranger

to [the] contract” who “lack[ed] standing to bring an action for breach of that contract.” See

Bischoff v. Bletz, 2008 VT 16, ¶¶ 15–16, 183 Vt. 235 (citation omitted).

        The small claims court went too far in pressing the issue of standing here, however.

This particular defendant appeared in the action, entered into a settlement agreement with the

plaintiff, and told the court that she was “convinced” that she owed money to “this particular

plaintiff.” This sequence of events should have persuaded the court that standing was not an


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issue in this case, and that defendant was more interested in settling the dispute than litigating

the merits of the claim.

        Negotiated settlements are ordinarily favored in small claims court because they

encourage an atmosphere of mutual agreement, avoid the need for litigation, and produce a

result that is more likely to be acceptable and enforceable as between the parties. Clark’s

Truck Center v. Smith, 2009 VT 80, ¶ 7. Negotiated settlements—and the use of mediation in

general—are consistent with the goal of simple and informal small claims proceedings. 12

V.S.A. § 5531(a).

        It is not the role of the small claims court to investigate the merits of the case when

presented with a settlement agreement. Rather, the role of the court is to ensure that the

settlement was entered into voluntarily. Smith, 2009 VT 80, ¶ 10; 46 Am. Jur. 2d Judgments

§§ 183–86. This makes sense because parties may enter into a settlement agreement for any

number of personal (and often private) reasons that do not necessarily reflect the merits. The

voluntariness inquiry ensures that both parties have weighed and balanced the benefits and

obligations of the settlement, and ultimately determined that their interests are best served by

“voluntarily enter[ing] into an agreement setting their dispute or disputes at rest.”

Reichenbach v. Kraska Enterprises, LLC, 938 A.2d 1238, 1247 (Conn. Ct. App. 2008).

        Here, the settlement agreement benefitted the defendant because it reduced the

amount of her total debt by more than $3,000, and brought a degree of finality to an ongoing

dispute. Defendant chose to accept the benefits of the agreement rather than take the chance

that plaintiff might be unable to prove its claim at trial. She made it clear to the small claims

court that she wanted it to approve the settlement. The small claims court should have

recognized that defendant was making her own voluntary decision about the benefits and

consequences of the settlement agreement, and honored that choice.




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       For these reasons, the decision of the small claims court to reject the settlement

agreement and dismiss the case is reversed. The case is remanded to the small claims court

with instructions to enter judgment on the settlement agreement that was reached by the

parties on April 28, 2009.



                                         ORDER

        The decision of the small claims court is reversed, and the case is remanded to the
small claims court with instructions to enter judgment on the settlement agreement that was
reached by the parties on April 28, 2009.

       Dated at Rutland, Vermont this ____ day of February, 2010.


                                             ____________________________________
                                             Hon. William D. Cohen
                                             Presiding Judge




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