                         United States Court of Appeals
                             FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 07-1136
                                     ___________

Gregory W. Wilhelm, individually,         *
and on behalf of others similarly         *
situated, as a class,                     *
                                          *
       Plaintiff - Appellant,             * Appeal from the United States
                                          * District Court for the
              v.                          * District of North Dakota.
                                          *
Credico, Inc., et al.,                    *
                                          *
       Defendants - Appellees.            *
                                     ___________

                                Submitted: October 17, 2007
                                    Filed: March 3, 2008
                                    ___________

Before LOKEN, Chief Judge, GRUENDER and BENTON, Circuit Judges.
                              ___________

LOKEN, Chief Judge.

       Gregory Wilhelm’s credit card debt was assigned for collection to Pinnacle
Credit Services, LLC (“Pinnacle”), and then to Credico, Inc. (“Credico”). Credico
sent Wilhelm a “Notice of Lawsuit” letter threatening to sue unless Wilhelm paid
$8,808.20, an amount that included a charge of interest on past due interest, which
violates North Dakota law. Wilhelm disputed the debt and demanded verification.
Recognizing its error, Credico did not sue. Wilhelm then commenced this putative
class action in North Dakota state court against Credico and certain employees,
seeking actual and statutory damages and attorneys fees for alleged violations of the
Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq. Wilhelm
added Pinnacle as a defendant after Credico removed the case to federal court. The
district court granted summary judgment dismissing Wilhelm’s various claims. See
Wilhelm v. Credico, Inc., 426 F. Supp. 2d 1030, 455 F. Supp. 2d 1006, and 2006 WL
3478986 (D.N.D. 2006). Wilhelm appeals.

       In its Separate Answer, Credico admitted that Wilhelm’s account showed a total
amount owing of $4,644.36 when it was assigned by Pinnacle, consisting of $2,474.07
in original principal and $2,170.29 in past due interest charged by the original
creditor. Credico mistakenly recorded the entire $4,644.36 as principal and then
added interest at the agreed credit card rate of 20.15% per annum, resulting in the
$8,808.20 demanded in the Notice of Lawsuit letter. Wilhelm argues that the district
court erred in granting summary judgment on his claims (i) that Pinnacle and Credico
violated 15 U.S.C. § 1692e(8) by failing to communicate that the debt was disputed,
which resulted in independent credit reporting agencies reporting to Wilhelm that the
debt was outstanding but not disputed; (ii) that Credico violated § 1692e(5) by
sending an empty threat-to-sue letter; and (iii) that Credico violated § 1692e(5) by
attempting to collect interest on interest in violation of North Dakota law. Reviewing
the grant of summary judgment de novo and the evidence in the light most favorable
to Wilhelm, we affirm in part and reverse in part.

            I. The Failure To Report the Debt as Disputed Claims.

      Section 1692e generally prohibits the use of “any false, deceptive, or
misleading representation . . . in connection with the collection of any debt” and then
enumerates in sixteen subsections specific practices that fall within this prohibition.
One subsection provides that a debt collector may not “communicat[e] . . . to any
person credit information which is known or which should be known to be false,
including the failure to communicate that a disputed debt is disputed.” 15 U.S.C. §
1692e(8) (emphasis added). In late 2004, before filing this action, Wilhelm obtained

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reports from various credit reporting agencies showing that, in December 2003,
Pinnacle reported the debt as in collection but not disputed. Wilhelm alleges that
Credico violated § 1692e(8) by failing to report his dispute of the debt to Pinnacle,
and that Pinnacle violated § 1692e(8) by failing to report the debt as disputed to credit
reporting agencies. The claim against Pinnacle was first asserted when Wilhelm
moved to amend his complaint on October 3, 2005. The district court concluded that
the claim against Pinnacle is barred by the FDCPA’s one-year statute of limitations.
See 15 U.S.C. § 1692k(d); 455 F. Supp. 2d at 1009. The court dismissed the claim
against Credico on the grounds that Credico had no affirmative duty to report the debt
as disputed to Pinnacle and that Wilhelm failed to refute an affidavit by a Credico
employee averring that he notified Pinnacle when Credico received Wilhelm’s letter
disputing the debt on December 12, 2003. See 2006 WL 3478986 at *3-*4.

       Both claims are premised on Wilhelm’s assertion that § 1692e(8) imposed an
affirmative duty on Credico and Pinnacle to disclose that he had disputed the debt.
He cites no case supporting this contention, and we reject it. Section 1692e generally
prohibits “false, deceptive, or misleading representation.” Subsection 1692e(8)
applies to the “communicating” of “credit information.” “Communication” is defined
as “the conveying of information regarding a debt directly or indirectly to any person
through any medium.” § 1692a(2). Reading these provisions together, as we must, the
relevance of the portion of § 1692e(8) on which Wilhelm relies -- “including the
failure to communicate that a disputed debt is disputed” -- is rooted in the basic fraud
law principle that, if a debt collector elects to communicate “credit information” about
a consumer, it must not omit a piece of information that is always material, namely,
that the consumer has disputed a particular debt. This interpretation is confirmed by
the relevant part of the Federal Trade Commission’s December 1988 Staff
Commentary on the Fair Debt Collection Practices Act:




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      1. Disputed debt. If a debt collector knows that a debt is disputed by the
      consumer . . . and reports it to a credit bureau, he must report it as
      disputed.

      2. Post-report dispute. When a debt collector learns of a dispute after
      reporting the debt to a credit bureau, the dispute need not also be
      reported.

FTC Staff Commentary, 53 Fed. Reg. 50097-02, 50106 (Dec. 13, 1988)(emphasis
added), followed in Black v. Asset Acceptance, LLC, 2005 U.S. Dist. LEXIS 43264
at *12-13 (N.D. Ga. 2005), and in Hilburn v. Encore Receivable Mgmt., Inc., 2007
WL 1200949 at *4 (D. Or. 2007).

       Having rejected Wilhelm’s affirmative duty contention, we have no difficulty
concluding that the district court properly granted summary judgment dismissing these
claims. Wilhelm presented no evidence that Credico communicated any credit
information to Pinnacle; the summary judgment record consists only of the affidavit
by Credico’s employee that Credico immediately reported Wilhelm’s disputing of the
debt to Pinnacle, which if true defeats the claim. As for the claim against Pinnacle,
Wilhelm did submit evidence that Pinnacle reported credit information to credit
reporting agencies in December 2003 without reporting that the debt was disputed.
However, even crediting the Credico employee’s affidavit, there is no evidence that
these reports were made after Pinnacle learned of the dispute in mid-December. In
any event, a claim based upon Pinnacle reports in December 2003 is clearly time-
barred, and Wilhelm conceded at oral argument he presented no evidence that
Pinnacle communicated any credit information about Wilhelm to any person within
the one-year limitations period. See Mattson v. U.S. West Commc’ns., Inc., 967 F.2d
259, 261 (8th Cir. 1992).




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                       II. The Empty Threat To Sue Claim.

      The FDCPA bars a debt collector such as Credico from threatening “to take any
action that cannot legally be taken or that is not intended to be taken.” 15 U.S.C.
§ 1692e(5). Wilhelm’s amended complaint alleged that Credico violated this
provision because its Notice of Lawsuit letter was an empty threat to sue. That letter
to Wilhelm began:

      YOU WILL BE SUED - UNLESS YOU MAKE ARRANGEMENTS
      TO PAY YOUR BILL. THIS LETTER IS NO IDLE THREAT - THE
      PAPERWORK HAS BEEN ORDERED TO BEGIN A LAWSUIT
      AGAINST YOU. WE ONLY SEND THIS LETTER TO PEOPLE WE
      INTEND TO SUE!

He argues that the district court erred in granting summary judgment dismissing this
claim because Credico did not sue 101 of the 151 North Dakota residents who
received this letter in a nineteen-month period, demonstrating its lack of a firm intent
to take this action. Though Credico produced an affidavit by its president averring
that Credico only sends the letter “to people we intend to sue,” Wilhelm notes that
Credico did not produce the “paperwork . . . ordered to begin a lawsuit” referred to in
the letter. He also argues that Credico’s subjective intent is an issue for the jury.

       The FDCPA also provides that a debt collector such as Credico must give a
consumer prompt initial notice that the debt will be assumed to be valid unless the
consumer disputes its validity within thirty days, and that the debt collector will obtain
and provide verification if the debt is disputed. 15 U.S.C. § 1692g(a)(3), (4). If the
debt is disputed, the debt collector “shall cease collection of the debt” until
verification is obtained. § 1692g(b). Because not all debts can be verified, at least two
of our sister circuits have held that debt collectors are not required to validate a debt
at the consumer’s request; they may alternatively “cease all collection activities.”
Jang v. A.M. Miller & Assocs., 122 F.3d 480, 483 (7th Cir. 1997); accord Smith v.

                                           -5-
Transworld Sys., Inc., 953 F.2d 1025, 1031-32 (6th Cir. 1992). Based upon these
authorities, and a second affidavit by Credico’s president averring that it elected not
to sue Wilhelm when he responded to the Notice of Lawsuit letter by disputing the
debt and requesting verification, the district court concluded that Wilhelm failed to
show a genuine issue of material fact on this issue.

       Our primary problem with the district court’s analysis is that the record on
appeal is devoid of evidence that Credico -- or Pinnacle or the original creditor, for
that matter -- ever provided Wilhelm with the initial notice of his right to dispute the
debt and request verification that is required by § 1692g(a). Absent compliance with
this disclosure provision, a threat to sue is an action “that cannot legally be taken” for
purposes of § 1692e(5). We refuse to assume from a silent record that the disclosure
was provided. If Credico submitted proof of the disclosure to the district court that
it omitted from the record on appeal, then reversal is warranted for its inexcusable
carelessness in defending the district court’s ruling on appeal.

       Even if Credico timely provided the § 1692g(a) disclosure notice to Wilhelm,
the Notice of Lawsuit did not disclose that collection activities must cease if he timely
disputed the debt and requested validation. Jang and Smith, the cases on which the
district court relied, were lawsuits challenging disclosure notices that did not also
disclose that collection activities would cease if the consumer requested validation of
the debt. By contrast, this case involves a categorical threat to sue made in a letter that
failed to disclose that Credico would not sue any consumer who timely disputed the
debt and requested its validation. That appears to be a threat to take action “that
cannot legally be taken” within the meaning of § 1692e(5). A reasonable jury might
also find that an unequivocal threat to sue in these circumstances constituted use of
a “deceptive means to collect or attempt to collect” a debt that is prohibited by
§ 1692e(10). See United States v. Nat’l Fin. Servs., Inc., 98 F.3d 131, 138-39 (4th
Cir. 1996); Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir. 1993);
Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991); Pipiles v. Credit Bureau of

                                           -6-
Lockport, Inc., 886 F.2d 22, 25 (2d Cir. 1989). That question is determined by
applying an objective standard based upon the understanding of the “unsophisticated
consumer.” Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002).
For these reasons, we reverse the grant of summary judgment on this claim.

                       III. The Interest-on-Interest Claim.

       Wilhelm alleges that Credico violated the FDCPA by attempting to collect a
debt computed in violation of the North Dakota statute prohibiting contracts that
“provide for the payment of interest on interest overdue.” N.D.C.C. § 47-14-09(1).
For purposes of this appeal, it is undisputed that the amount demanded in Credico’s
Notice of Lawsuit letter, $8,808.20, included a demand for payment of interest on
past-due interest; that this portion of the asserted debt violated N.D.C.C. § 47-14-
09(1); and that threatening to sue to collect a debt computed in violation of state law
is prohibited by 15 U.S.C. § 1692e(5). See Picht v. Hawks, 236 F.3d 446, 448 (8th
Cir. 2001). The district court nonetheless dismissed this claim, concluding that
Credico did not violate the FDCPA because it presented sufficient unrebutted
evidence of a statutory affirmative defense -- “that the violation was not intentional
and resulted from a bona fide error notwithstanding the maintenance of procedures
reasonably adapted to avoid any such error.” 15 U.S.C. § 1692k(c). Wilhelm argues
that the court erred in granting summary judgment on this claim because the affidavits
submitted by Credico’s president did not clearly establish how the error was made and
whether Credico’s procedures were “reasonably adapted to avoid” that error.

       The affidavits by Credico‘s president averred that Credico was aware of the
North Dakota prohibition on charging interest on past-due interest. He explained that
when Credico takes over an account from an original creditor or an assignor such as
Pinnacle, the employee responsible for setting up the new Credico account is trained
to segregate unpaid principal from past-due interest so that Credico will only charge
interest on the unpaid principal balance. In this case, however, the former employee

                                         -7-
responsible for setting up new accounts for debts assigned by Pinnacle in November
2003 mistakenly failed to break out the unpaid principal from the past-due interest.
As a result, the total amount owed by Wilhelm on the day Credico received his
account, $4,644.36, was mistakenly recorded as unpaid principal. The affidavits
further explained that the error was corrected approximately one month later;
therefore, interest on interest was not collected from any North Dakota consumer.
Attached to the second affidavit were excerpts from a document describing “Credico’s
written procedure for electronic listings of new Pinnacle accounts,” which included
an instruction that “Client Principle” (sic) and “Client interest” be entered on separate
lines of the listings.

       To establish the bona fide error defense, a debt collector must prove by a
preponderance of the evidence that its FDCPA violation was unintentional and was
caused by an objectively bona fide error (i.e., one that is plausible and reasonable)
made despite the use of procedures reasonably adapted to prevent that specific error.
See Johnson v. Riddle, 443 F.3d 723, 728-30 (10th Cir. 2006). In responding to
Credico’s motion for summary judgment, Wilhelm did not depose Credico’s president
or any other employee, did not seek to discover the identity of the former clerical
employee, and offered no affidavits, depositions, or other evidence disputing
Credico’s affidavits. Thus, we have no difficulty concluding that Credico’s interest-
on-interest violation was unintentional and was caused by a bona fide error of a
clerical or data entry nature.

       That leaves the question whether Credico made a sufficient showing that it
employed procedures “reasonably adapted to avoid” the error that occurred. This is
a fact-intensive inquiry that few prior cases have addressed. As the district court
recognized, it is highly relevant that Wilhelm made no attempt to dispute the facts set
forth in affidavits by Credico’s highest-ranking official. See Smith, 953 F.2d at 1031;
Bible v. Allied Interstate, Inc., 2001 WL 1618494 at *3 (D. Minn. 2001); Howe v.
Reader’s Digest Ass’n, Inc., 686 F. Supp. 461, 467 (S.D.N.Y. 1988). The affidavits

                                          -8-
and supporting documents establish that Credico’s employees received specific
instructions to segregate principal and interest in setting up the accounts received from
Pinnacle so as to avoid charging interest on interest. The procedures were not as
elaborate as those in some cases that have upheld a bona fide error defense, but the
error to be avoided in this case was not complex. In these circumstances, we agree
with the district court that Credico was entitled to summary judgment dismissing this
claim because a reasonable jury could only conclude that Credico’s procedures were
reasonably adapted to avoid such errors. Compare Danielson v. Hicks, 1995 WL
767290 at *3 (D. Minn. 1995); Beattie v. D.M. Collections, Inc., 754 F. Supp. 383,
389-90 (D. Del. 1991).

       The district court judgment in favor of Pinnacle dated October 5, 2006, is
affirmed. The judgment in favor of Credico dated November 30, 2006, is affirmed in
part and reversed in part, and the case against Credico is remanded to the district court
for further proceedings not inconsistent with this opinion.
                        ______________________________




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