     Case: 15-20392   Document: 00513669454     Page: 1   Date Filed: 09/08/2016




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                United States Court of Appeals
                                                                         Fifth Circuit
                                 No. 15-20392                          FILED
                                                               September 8, 2016

ROXANNE DAUGHERTY,                                                Lyle W. Cayce
                                                                       Clerk
             Plaintiff - Appellant

v.

CONVERGENT OUTSOURCING, INCORPORATED; LVNV FUNDING,
L.L.C.,

             Defendants - Appellees




                Appeal from the United States District Court
                     for the Southern District of Texas


Before DENNIS, ELROD, and GRAVES, Circuit Judges.
JAMES L. DENNIS, Circuit Judge:
      The issue presented by this appeal is whether a collection letter for a
time-barred debt containing a discounted “settlement” offer—but silent as to
the time bar and without any mention of litigation—could mislead an
unsophisticated consumer to believe that the debt is enforceable in court, and
therefore violate the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C.
§§ 1692-1692p. After receiving such a letter, the plaintiff credit card debtor
sued the defendant debt collectors pursuant to the FDCPA. The district court
dismissed the complaint, holding that efforts to collect time-barred debts
without threatening or filing suit do not violate the FDCPA. We reverse.
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While it is not automatically unlawful for a debt collector to seek payment of a
time-barred debt, a collection letter violates the FDCPA when its statements
could mislead an unsophisticated consumer to believe that her time-barred
debt is legally enforceable, regardless of whether litigation is threatened.
                                       I.
      According to her complaint, Plaintiff-Appellant Roxanne Daugherty
accumulated $12,824.24 in credit card debt. After Daugherty defaulted on the
debt, Defendant-Appellee LVNV Funding, L.L.C. (“LVNV”) purchased the debt
from the creditor.      LVNV then hired Defendant-Appellee Convergent
Outsourcing, Inc. (“Convergent”) to collect the debt on LVNV’s behalf. With an
interest rate of 8%, the debt had increased to $32,405.91 over the course of
many years. Convergent subsequently sent Daugherty a letter, dated January
23, 2014, proposing that Daugherty make a payment of $3,240.59 to “settle” a
“past due balance of $32,405.91.”      The parties agree that the statute of
limitations on collection of the debt had expired.
      Convergent’s letter to Daugherty was titled “Settlement Offer” and
stated as follows:
      Dear Roxanne L. Daugherty:
      This notice is being sent to you by a collection agency. The records
      of LVNV Funding LLC show that your account has a past due
      balance of $32,405.91.
      Our client has advised us that they are willing to settle your
      account for 10% of your total balance due to settle your past
      balance. The full settlement must be received in our office by an
      agreed upon date. If you are interested in taking advantage of this
      offer, call our office within 60 days of this letter. Your settlement
      amount would be $3,240.59 to clear this account in full.
      Even if you are unable to take advantage of this offer, please
      contact our office to see what terms can be worked out on your


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      account. We are not required to make this offer to you in the
      future.
      Sincerely,
      Convergent Outsourcing, Inc.
          THIS IS AN ATTEMPT TO COLLECT A DEBT AND ANY
          INFORMATION OBTAINED WILL BE USED FOR THAT
          PURPOSE. THIS COMMUNICATION IS FROM A DEBT
                           COLLECTOR.
      NOTICE: PLEASE SEE REVERSE SIDE FOR IMPORTANT
                 CONSUMER INFORMATION.
      The letter requested that Daugherty respond by February 27, 2014, and
offered three payment “opportunit[ies]”: (1) a “Lump Sum Settlement Offer of
10%” requiring a single payment of $3,240.59; (2) a “Settlement Offer of 25%
& Pay Over 3 Months” requiring three payments of $2,700.49; or (3) “Spread
Your Payments Over 12 Months” requiring monthly payments of $2,700.49
over the course of a year.
      On November 18, 2014, Daugherty filed this suit against Convergent and
LVNV, alleging violations of the FDCPA.                  According to the complaint,
Convergent and LVNV—both “debt collectors” as defined by the FDCPA, 15
U.S.C. § 1692a(6)—violated 15 U.S.C. § 1692e by using false, deceptive, or
misleading representations or means in connection with the collection of
Daugherty’s debt and violated 15 U.S.C. § 1692f by using unfair or
unconscionable means to attempt to collect that debt.                 Daugherty faulted
Convergent’s collection letter for failing to disclose that the debt was not
judicially enforceable, that settling the debt through a 10% payment would
trigger tax liability for Daugherty, 1 and that a partial payment would revive




      1   Daugherty does not appeal from the rejection of her tax-consequences claim.
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the entire debt. She sought statutory damages in the amount of $1,000 and
attorneys’ fees and costs.
      Convergent and LVNV moved to dismiss Daugherty’s suit for failure to
state a claim upon which relief could be granted pursuant to Federal Rule of
Civil Procedure 12(b)(6). The district court granted the motion, relying in part
on Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), and
Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767 (8th Cir. 2001), to
hold that the FDCPA permits a debt collector to seek voluntary repayment of
a time-barred debt so long as the debt collector does not initiate or threaten
legal action in connection with its debt collection efforts.      Daugherty v.
Convergent Outsourcing, Inc., No. 4:14-CV-3306, 2015 WL 3823654, at *3-7
(S.D. Tex. June 18, 2015). Daugherty appealed.
                                       II.
      “This court reviews a district court’s grant of a motion to dismiss de
novo.” Whitley v. Hanna, 726 F.3d 631, 637 (5th Cir. 2013). The plaintiff’s
well-pleaded facts are to be accepted as true and viewed in the light most
favorable to her. Id. A claim is properly dismissed when the facts alleged do
not state a claim that is plausible on its face. Amacker v. Renaissance Asset
Mgmt. LLC, 657 F.3d 252, 254 (5th Cir. 2011). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”
Gearlds v. Entergy Servs., Inc., 709 F.3d 448, 450 (5th Cir. 2013) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
                                      III.
      The FDCPA prohibits the use of “any false, deceptive, or misleading
representation or means in connection with the collection of any debt.” 15
U.S.C. § 1692e.   Section 1692e furnishes a nonexclusive list of prohibited

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practices, including falsely representing the character, amount, or legal status
of any debt, § 1692e(2)(A), and threatening to take any action that cannot
legally be taken, § 1692e(5). Section 1692f prohibits debt collectors from using
“unfair or unconscionable means to collect or attempt to collect any debt.”
“Congress . . . clearly intended the FDCPA to have a broad remedial scope.”
Serna v. Law Office of Joseph Onwuteaka, P.C., 732 F.3d 440, 445 (5th Cir.
2013) (emphasis omitted) (quoting Hamilton v. United Healthcare of La., Inc.,
310 F.3d 385, 392 (5th Cir. 2002)). The FDCPA should therefore be construed
broadly and in favor of the consumer. Id. at 445 n.11.
       When evaluating whether a collection letter violates § 1692e or § 1692f,
a court must view the letter from the perspective of an “unsophisticated or least
sophisticated consumer.” 2 McMurray v. ProCollect, Inc., 687 F.3d 665, 669 (5th
Cir. 2012) (quoting Goswami v. Am. Collections Enter., 377 F.3d 488, 495 (5th
Cir. 2004)). The court must “assume that the plaintiff-debtor is neither shrewd
nor experienced in dealing with creditors.” Goswami, 377 F.3d at 495. At the
same time, however, the unsophisticated consumer is not one “tied to the ‘very
last rung on the [intelligence or] sophistication ladder.’” Id. (alteration in
original) (quoting Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d
1232, 1236 (5th Cir. 1997)).
                                             IV.
       There is an apparent conflict in the circuits as to whether a collection
letter offering “settlement” of a time-barred debt can violate the FDCPA if the
debt collector does not disclose the debt’s unenforceability or expressly
threaten litigation. The Third and Eighth Circuits have stated that “[i]n the



       2We refer to both as “unsophisticated” consumers for ease of reference. See Peter v.
G.C. Servs. L.P., 310 F.3d 344, 349 n.1 (5th Cir. 2002) (opting not to decide which of the two
standards governs because “the difference between the standards is de minimis at most”).
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absence of a threat of litigation or actual litigation, no violation of the FDCPA
has occurred when a debt collector attempts to collect on a potentially time-
barred debt that is otherwise valid.”               Huertas, 641 F.3d at 33 (quoting
Freyermuth, 248 F.3d at 771). On the other hand, the Sixth and Seventh
Circuits have held that collection letters offering to settle time-barred debts
without disclosing the status of the debt can be misleading and therefore
violate the FDCPA even if they do not expressly threaten litigation.                        See
Buchanan v. Northland Grp., Inc., 776 F.3d 393, 397 (6th Cir. 2015); McMahon
v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). We have not
previously taken a position on this issue, 3 but we are persuaded by McMahon
and Buchanan that a collection letter that is silent as to litigation, but which
offers to “settle” a time-barred debt without acknowledging that such debt is
judicially unenforceable, can be sufficiently deceptive or misleading to violate
the FDCPA.
       At the outset, as the court in McMahon concluded, “[w]hether a
[collection] letter is confusing is a question of fact” and a “[d]ismissal is
appropriate only when it is apparent from a reading of the letter that not even
a significant fraction of the population would be misled by it.” 744 F.3d at 1020
(internal quotation marks omitted). In McMahon, the debt collectors in the
consolidated cases had sent collection letters listing outstanding amounts due
but failing to mention that the statute of limitations periods on the debts had


       3 LVNV points to our decision in Castro v. Collecto, Inc., 634 F.3d 779 (5th Cir. 2011),
for support, but that case is inapposite. There, we parenthetically quoted the Eighth Circuit’s
statement that, “[I]n the absence of a threat of litigation or actual litigation, no violation of
the FDCPA has occurred when a debt collector attempts to collect on a potentially time-
barred debt that is otherwise valid.” Id. at 783 (quoting Freyermuth, 248 F.3d at 771). The
Castro panel, however, cited the Eighth Circuit solely for the proposition that “threatening
to sue on time-barred debt may well constitute a violation of the FDCPA.” Id. The question
of whether an attempt to collect a time-barred debt can violate the FDCPA even without a
threat of litigation simply was not before us at that time.
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already expired. Id. at 1013-14. The collection letter in each case offered to
“settle” the debt at a substantial discount, provided the debtor acted within a
prescribed period of time. Id. The Seventh Circuit held that each letter could
mislead an unsophisticated consumer into believing the debt was judicially
enforceable and that each plaintiff’s FDCPA claim should therefore survive a
motion to dismiss. Id. at 1022.
        While the McMahon court noted that efforts to collect on a time-barred
debt are not “automatically improper,” it concluded that a debt collector
violates the FDCPA when it “uses language in its [collection] letter that would
mislead an unsophisticated consumer into believing that the debt is legally
enforceable.”    Id. at 1020.   The court reasoned that this proposition “is
straightforward under the statute” as the FDCPA specifically prohibits “the
false representation of the character or legal status of any debt.” Id. (citing
§ 1692e(2)(A)). The court also found the offers to “settle” misleading because
“a gullible consumer who made a partial payment would inadvertently have
reset the limitations period and made herself vulnerable to a suit on the full
amount.”     Id. at 1021.   Thus, the court found the settlement offers “only
reinforced the misleading impression that the debt was legally enforceable.”
Id.    The court further noted that the Federal Trade Commission and the
Consumer Financial Protection Bureau have found that “most consumers do
not understand their legal rights with respect to time-barred debt,” id. (citing
FED. TRADE COMM’N, REPAIRING A BROKEN SYSTEM: PROTECTING CONSUMERS
IN    DEBT COLLECTION LITIGATION AND ARBITRATION 26-27 (2010)), and that
these and other agencies have argued in other cases that a debt collector
collecting on a time-barred debt “must inform the consumer that (1) the
collector cannot sue to collect the debt and (2) providing a partial payment
would revive the collector’s ability to sue to collect the balance[,]” id. at 1015.

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For these reasons, the McMahon court concluded that the plaintiff in each case
had stated an FDCPA claim upon which relief could be granted. Id. at 1022.
      In Buchanan, which involved a similar collection letter offering to settle
a time-barred debt without disclosing its unenforceability, a panel majority of
the Sixth Circuit arrived at the same conclusion.         776 F.3d at 400.    The
Buchanan court held, in part:
      When a [collection] letter creates confusion about a creditor’s right
      to sue, that is illegal. The [FDCPA] singles out as unlawful the
      “false representation of . . . the character, amount, or legal status
      of any debt.” “Whether a debt is legally enforceable is a central
      fact about the character and legal status of that debt.” A
      misrepresentation about the limitations period amounts to a
      “straightforward” violation of § 1692e(2)(A).

Id. at 398-99 (alteration in original) (citations omitted). The court also noted
that an unsophisticated debtor who could not afford the settlement might
assume from the letter that at least a partial payment would be advisable, not
knowing that under the controlling state law a partial payment would restart
the statute-of-limitations clock on the principal debt. Id. at 399. The court
therefore concluded that “[w]ithout disclosure, a well-meaning debtor could
inadvertently dig herself into an even deeper hole.” Id. (citing Debt Collection
(Regulation F), 78 Fed. Reg. 67,876 (Nov. 12, 2013) (“[C]onsumers may believe
that when they make a partial payment on a time-barred debt they have only
obligated themselves in the amount of the partial payment but in many
circumstances that is not true.”)).
      Freyermuth and Huertas involved collection letters demanding payment
on time-barred debt but lacking any disclosure that the applicable limitations
periods had expired. In Freyermuth, the Eighth Circuit held that an attempt
to collect on a time-barred debt is permissible under the FDCPA because “a
statute of limitations does not eliminate the debt; it merely limits the judicial
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remedies available.” 248 F.3d at 771. The Third Circuit followed suit, noting
that “it is appropriate for a debt collector to request voluntary repayment of a
time-barred debt.” Huertas, 641 F.3d at 33. In each case, the court contrasted
the facts before it with cases wherein collection letters contained threats to
sue, and concluded that the absence of such threats meant that the letters
before them did not violate the FDCPA. See id. at 32-33; Freyermuth, 248 F.3d
at 771.
      The Sixth and Seventh Circuits offer differing perspectives on the extent
to which their opinions conflict with Freyermuth and Huertas. The Sixth
Circuit asserted common ground with the Third and Eighth Circuits, inasmuch
as all three courts found “an attempt to collect a time-barred debt is not a thinly
veiled threat to sue.” Buchanan, 776 F.3d at 399 (citing Huertas, 641 F.3d at
33; Freyermuth, 248 F.3d at 771). The Sixth Circuit reasoned that, because
the letters before the Third and Eighth Circuits did not offer to “settle” or invite
a partial payment, the Sixth Circuit’s refusal to dismiss the plaintiff’s claim
based on a very different collection letter did not put it at odds with the two
fellow circuits. Id. The Seventh Circuit, however, concluded that the FDCPA
“cannot bear the reading that” the Huertas and Freyermuth courts have given
it: “The plain language of the FDCPA prohibits not only threatening to take
actions that the collector cannot take, but also the use of any false, deceptive,
or misleading representation, including those about the character or legal
status of any debt.” McMahon, 744 F.3d at 1020-21. The Seventh Circuit
specifically said its “opinion create[d] a conflict in the circuits.” Id. at 1020 n.1.
      We agree with the Seventh Circuit’s interpretation of the FDCPA in
McMahon, and with the Sixth Circuit’s opinion in Buchanan insofar as it is




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consistent with McMahon. 4 Accordingly, we agree that a collection letter
seeking     payment       on    a   time-barred       debt    (without     disclosing     its
unenforceability) but offering a “settlement” and inviting partial payment
(without disclosing the possible pitfalls) could constitute a violation of the
FDCPA. Accepting as true the well-pleaded facts alleged by Daugherty, and
viewing these facts in the light most favorable to her, we conclude that
Daugherty’s claim is facially plausible. 5
       For these reasons, we REVERSE the district court’s grant of Defendants’
motion to dismiss and REMAND for further proceedings consistent with this
opinion.




       4 We note that two district courts in this circuit have already embraced the approach
we announce today. See Langley v. Northstar Location Servs., No. H-16-1351, 2016 WL
4059355 (S.D. Tex. July 28, 2016); Carter v. First Nat’l Collection Bureau, Inc., 135 F. Supp.
3d 565 (S.D. Tex. 2015).
       5 Appellees argue that partial payment by Daugherty would not revive her debt under

Texas law. However, whether Texas law governs the revival or reset of the statute of
limitations pertinent to the particular debt at issue in this case appears to depend on facts
outside of the pleadings and is therefore inappropriate for consideration under Rule 12(b)(6).
In any event, we decline to reach this issue as it is unnecessary to our resolution of this
appeal.
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