                            In the

United States Court of Appeals
              For the Seventh Circuit

No. 07-4083

M ARVIN S EEGER, B RADLEY G AMROTH,
R OBERT M C C LAIN , and JOANNE B LAREK,
on behalf of themselves and all others
similarly situated,
                                        Plaintiffs-Appellees,

                                v.



AFNI, INC.,
                                            Defendant-Appellant.
                         ____________
           Appeal from the United States District Court
              for the Eastern District of Wisconsin.
     No. 05-C-0714—William E. Callahan, Jr., Magistrate Judge.
                         ____________

   A RGUED S EPTEMBER 9, 2008—D ECIDED D ECEMBER 8, 2008
                         ____________



  Before B AUER, C UDAHY, and W OOD , Circuit Judges.
  W OOD , Circuit Judge. This case involves the legality of
the methods that AFNI, Inc., uses when it undertakes
collection efforts—in this instance, on behalf of Cingular
Wireless. (After the events in this case, Cingular was
2                                                  No. 07-4083

acquired by AT&T; for the sake of consistency with the
district court’s opinion, we refer to it here by its former
name.) The district court certified a class of customers in
the state of Wisconsin who had received a collection letter
during a specified time. The class took the position that
AFNI’s practices violated both Wisconsin law and the Fair
Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692
et seq. On cross-motions for summary judgment, the district
court ruled that AFNI had not violated Wis. Stat. § 422.202
when it imposed its collection fee, because the cell phone
contract was not a “consumer credit transaction.” The
court also ruled, however, that the plaintiff class was
entitled to summary judgment on its claims under the
FDCPA and Wis. Stat. § 427.104(j), because neither AFNI’s
contracts with its customers nor Wisconsin law authorized
it to charge the type of collection fee it was using. Plaintiffs
were willing to let well enough alone with respect to their
defeat on the § 422.202 theory, but AFNI has appealed the
judgment in favor of the class. Although we can imagine
hypothetical facts under which AFNI would be entitled to
prevail, AFNI did not present such a record to the district
court. We therefore affirm.


                               I
  Marvin Seeger, Bradley Gamroth, Robert McClain, and
Joanne Blarek each entered into an agreement with the
former Cingular Wireless, Ameritech Mobile Communica-
tions, or Worldcom, for cellular telephone service. Seeger’s
contract was with Cingular; it was a monthly plan that
included 800 “anytime” minutes and imposed extra
No. 07-4083                                                 3

charges for additional time used. The other three named
plaintiffs had similar plans with their carriers. At some
point, each one fell behind in his or her payments.
  AFNI is a debt collection company that purchases
accounts from some of its customers. The original contracts
between each plaintiff and the cellular telephone provider
contained language addressing the possible use of a
collection agency. Some Cingular contracts had this to say:
      You agree to pay to CINGULAR the fees of any
    collection agency, which may be based on a percentage
    at a maximum of 33% of the debt, and all costs and
    expenses, including reasonable attorneys’ fees and
    court costs, incurred by CINGULAR in exercising any
    of its rights and remedies when enforcing any provi-
    sions of this Agreement.
Other Cingular contracts said only that “[y]ou agree to
reimburse us the fees of any collection agency, which may
be based on a percentage at a maximum of 33% of the debt,
and all costs and expenses, including reasonable attorneys’
fees, we incur in such collection efforts.” The contracts also
contained various provisions making it clear that failure to
pay was cause for termination of the contract and that an
early termination fee or cancellation fee would be imposed.
  Between September 2004 and June 2005, AFNI sent debt
collection letters to Seeger, Gamroth, and McClain, inform-
ing each one that he owed a debt and that Cingular was the
original creditor. (The parties dispute whether Blarek
received that first letter.) AFNI’s letter stated that the
recipient was responsible for paying AFNI a collection fee
of 15% of the “original balance.” Some time later, McClain
4                                               No. 07-4083

and Blarek received another form letter from AFNI; the
second letter included the collection fee in the balance due.
In keeping with its normal practice, Cingular had sold
these accounts to AFNI. As part of the transfer, Cingular
furnished account information to AFNI on a CD-ROM, and
the information on the CD was then uploaded to AFNI’s
system. The information transmitted by Cingular said
nothing about any collection fees that AFNI might or might
not charge.
  On July 7, 2005, Seeger and Gamroth filed a complaint
against AFNI, alleging that its attempt to include a sepa-
rate collection fee in the amount due violated the FDCPA.
On November 29, 2005, they filed an amended complaint
that both added McClain and Blarek as plaintiffs and
included charges under the Wisconsin Consumer Act, Wis.
Stat. §§ 421-425. Six months later, the plaintiffs moved for
class certification. The district court (acting through a
magistrate judge, by consent of the parties) granted their
motion and defined the class as follows:
    (a) All natural persons in the State of Wisconsin (b)
    who were sent a collection letter by AFNI claiming a
    collection fee (c) for Cingular telephone service or
    service of another cellular provider transferred to
    Cingular, (d) obtained for personal, family or house-
    hold purposes, (e) which originally included a contract
    for a minimum term of service of one or more years,
    and “early cancellation fee” of any amount, (f) on or
    after July 7, 2004, (g) that was not returned by the
    postal service.
As noted above, the district court later granted summary
judgment in the class’s favor, ruling that AFNI’s actions
No. 07-4083                                                 5

violated the FDCPA because neither the contracts nor
Wisconsin law permitted the owner of a debt to impose a
separate fee for collection, if the fee was for the purpose of
reimbursing the owner itself as opposed to a third-party
debt collector. This also meant, the district court con-
cluded, that AFNI had violated the Wisconsin Consumer
Act’s provision prohibiting a debt collector from trying to
enforce a right it knows or has reason to know does not
exist. See Wis. Stat. § 427.104(j). AFNI now challenges those
rulings on appeal. We review the district court’s grant of
summary judgment de novo, examining the record in the
light most favorable to the non-moving party. Sound of
Music Co. v. 3M, 377 F.3d 910, 914 (7th Cir. 2007).


                              II
  In order to be entitled to collect a fee, AFNI must show
that the fee is either authorized by the governing contract
or that it is permitted by Wisconsin law. See 15 U.S.C.
§ 1692f(1). In AFNI’s view, the district court erred when it
rejected each one of these alternatives.


                              A
  We consider first whether Wisconsin law allows a debt
collector in AFNI’s position to impose the 15% fee that
AFNI wanted to charge. AFNI argues that the fee falls
within the definition of incidental or consequential dam-
ages for the customer’s breach of the underlying contract.
Therefore, it reasons, the fee may be collected by an entity
that purchases the contract for collection purposes.
6                                                 No. 07-4083

  AFNI is correct to point out that Wisconsin (like every
state) permits recovery of losses that are the natural and
probable result of the breach of a contract and that were
within the reasonable contemplation of the parties.
Magestro v. N. Star Envtl. Const., 649 N.W.2d 722, 725-26
(Wis. Ct. App. 2002); Peterson v. Cornerstone Prop. Dev., LLC,
720 N.W.2d 716, 730 (Wis. Ct. App. 2006). This rule applies
to service contracts like the plaintiffs’ cell phone contracts,
just as it applies to employment and construction contracts.
See Handicapped Children’s Educ. Bd. v. Lukaszewski, 332
N.W.2d 774, 778 (Wis. 1983).
   The fact that Wisconsin follows this well established rule
is not enough, by itself, to allow AFNI to recover. It must
show that this rule permits a third-party purchaser of an
account to recover its internal costs to recover the debt in
this manner, and, if so, that the 15% fee it charged to the
plaintiffs reflected AFNI’s actual costs. To establish the
first proposition, AFNI relies heavily on the Second Cir-
cuit’s decision in Tuttle v. Equifax Check, 190 F.3d 9 (2d Cir.
1999). In Tuttle, the plaintiff, while he was standing just
under a prominent sign warning that a collection fee of $20
would be imposed for dishonored checks, wrote a check for
approximately $57 at a hardware store. His check, though
authorized by Equifax, later bounced. Under the contract
between Equifax and the store, Equifax guaranteed all
checks that it authorized. When a check was dishonored,
Equifax was obligated to purchase it at face value and then
pursue collection efforts on its own.
  Tuttle asserted that Equifax was not entitled to collect a
$20 fee in conjunction with its effort to collect on the $57
No. 07-4083                                                 7

check, but the jury rejected his arguments and the Second
Circuit affirmed. The court found that Connecticut law
authorized the collection of the fee:
    Article 2 of the UCC, as adopted in Connecticut,
    provides that “[w]hen the buyer fails to pay the price
    as it becomes due the seller may recover, together with
    any incidental damages under section 42a-2-710, the
    price . . . of goods accepted.” Conn. Gen. Stat.
    § 42a-2-709. The “incidental damages” permitted under
    § 42a-2-709 “include any commercially reasonable
    charges, expenses or commissions . . . otherwise
    resulting from the breach,” id. § 42a-2-710, and may be
    recovered by a seller or by a “person in the position of a
    seller,” id. § 42a-2-707. The latter includes (as the
    commentary advises) “a financing agency which has
    acquired documents . . . by discounting a draft for the
    seller. . . .” Conn. Gen. Stat. Ann. § 42a-2-707, comment
    (West 1990 & Supp. 1999). More generally, a “financing
    agency” is defined in the UCC as one “who in the
    ordinary course of business . . . by arrangement with
    either the seller or the buyer intervenes in ordinary
    course to make or collect payment due or claimed
    under the contract for sale.” Conn. Gen. Stat.
    § 42a-2-104.
190 F.3d at 14-15 (emphasis added). In the alternative, the
court found that Tuttle had agreed to the imposition of the
collection fee when, in full view of the sign alerting him to
the $20 fee, he tendered his check.
  Neither a law expressly permitting a collection fee on
behalf of a person in the position of a seller of cellular
8                                               No. 07-4083

telephone services nor an agreement between the class
members and their cellular providers exists here. That
might not matter if the record contained any information
that would indicate whether or not the 15% collection fee
AFNI imposed can properly be characterized as incidental
or consequential damages resulting from the plaintiffs’
breach of their cellular phone contracts with Cingular. But
it does not. The record does not even reveal whether AFNI
paid 100 cents on the dollar for Cingular’s delinquent
accounts, or if (as is common), it purchased the portfolio of
accounts at a discount, thereby compensating itself up
front for the expense of its collection efforts and the risk
that some accounts might prove to be uncollectible. From
Cingular’s point of view, the incidental or consequential
damage from its customer’s failure to pay is the discount
it had to absorb, if any existed, when it sold the debt to
AFNI. But the record contains no evidence that would
support the proposition that there was any discount, much
less whether it equaled 15% of the face amount of the
debts, or any other amount for that matter. The record also
does not reveal whether AFNI’s business model involved
some combination of the 15% fee and a discount on
accounts it purchased. In short, AFNI failed to present the
necessary evidence that would permit a fact-finder to
conclude that AFNI’s cost of debt collection should be
characterized as an incidental or consequential expense of
the customer’s underlying breach of his or her contract
with Cingular.
  For the sake of completeness, we add that the Wisconsin
statutes at issue here do not contain the same kind of
language that UCC § 2-707 has, and on which the Second
No. 07-4083                                                 9

Circuit relied in Tuttle. This was important to the Tuttle
court’s conclusion; it did not hold that all damages that
can be characterized as incidental or consequential may
automatically be added on as a debt collection fee. This
alone might not be enough to defeat AFNI’s position, if
we were to conclude that Wisconsin courts would not
draw a distinction between a fee that the initial creditor
charged its customers and a fee imposed by the debt
collector. But, on this record, such a conclusion would not
help AFNI.
   That is because the record is insufficient to support a
finding that the 15% collection fee reflects AFNI’s actual
costs. AFNI relies exclusively on the following statement
by John Hess, its director of business development: “The
15% collection fee is substantially less than the average
collection costs on the collection accounts transferred to
AFNI by Cingular.” Hess did not explain how he reached
this conclusion, nor does the record contain any other data
that might support him. Indeed, the implication of Hess’s
statement is a bit odd. If AFNI is truly charging a collection
fee that is “substantially less” than its costs, then AFNI (a
company in the debt collection business, after all), is
pricing its services “substantially” below cost. As we have
already noted, we might guess that AFNI is also covering
its costs through the discount rate at which it purchases its
accounts, but we have no idea what that rate is.
  It is also worth noting that Equifax charged a set $20 fee
for each check, while AFNI charged a percentage fee that
necessarily varied with each account. For example, AFNI
charged Seeger $15.87, Gamroth $50.44, and McClain
10                                               No. 07-4083

$190.39. But the costs that AFNI describes in its brief, for
items such as computer equipment, personalizing form
letters, and sorting accounts, appear to be constant across
accounts. AFNI has not provided any evidence suggesting
that the 15% figure nonetheless works out to be an average
that compensates it for its efforts. Hess, in fact, disclaimed
any such position.


                              B
  AFNI also argues that the contracts between Cingular
and the plaintiffs authorized Cingular to charge a collec-
tion fee, and thus, as Cingular’s assignee, it was also
authorized to charge such a fee. Although the plaintiffs
signed different versions of Cingular’s contract, the
relevant clauses all refer to a right to collect fees of third
parties, such as collection agency fees, court costs, and
attorneys’ fees. The clauses speak of Cingular’s incurring
those fees itself and then the consumer’s reimbursing
Cingular.
  The district court held that the contracts do not authorize
Cingular to charge its customers a fee when it handles the
collection process on its own; instead, they authorize a fee
only when Cingular farms out the process to a third party.
The district court concluded that Cingular itself could not
charge a collection fee that was neither the result of a
referral of an account, nor reimbursement of fees charged
to it by a collection agency, nor as part of an incurred cost.
The use of the word “referral” implies the existence of a
third party; Cingular was not “referring” accounts to itself.
Nor does it make sense to think that Cingular was charging
No. 07-4083                                               11

itself a collection fee, which plaintiffs then would have to
reimburse. Finally, the district court reasoned that the 15%
collection fee was not a cost that Cingular would “incur.”
As the court pointed out,
    [t]he language of the contract does not simply state
    that a customer agrees to “pay all costs including . . .
    collection fees.” Rather, the contract states that the
    customer agrees to “pay all costs including . . . collec-
    tion fees . . . we incur in enforcing this Agreement.”As
    with the provision referencing reimbursement, a
    collection fee which is never paid is not a cost that
    Cingular would incur. Such being the case, AFNI, as
    with Cingular, could not charge a collection fee as part
    of a cost it incurred, as AFNI did not pay a collection
    fee to anyone.
  AFNI’s only response to this analysis is to assert that
Cingular could have charged customers the 15% fee if it
had referred the debt to AFNI for collection and AFNI had
charged Cingular 15% for collection services. But this is not
how Cingular and AFNI handled their relationship.
Instead, Cingular chose to sell its delinquent accounts in
bulk for a price that was acceptable to AFNI. Without more
evidence in the record, we have no basis on which to
conclude that AFNI’s fee should be regarded as the
equivalent of the referral fee that Cingular warned its
customers they might have to bear. The simple addition of
the words “including collection fees” to the contract would
have cured the problem.
12                                               No. 07-4083

                              C
   Finally, AFNI argues that it is entitled to invoke the bona
fide error defense that the FDCPA recognizes. The statute
provides that a debt collector is not liable if its violation
was not intentional and instead resulted from a bona fide
error. See 15 U.S.C. § 1692k(c). The parties here agree that
AFNI did not intend to violate the FDCPA, but they
dispute whether the defense applies to mistakes of law,
whether AFNI’s error was bona fide, and whether AFNI
maintained reasonable procedures designed to prevent this
kind of error.
  This court has not yet decided whether the bona fide error
defense applies to mistakes of law. Recently, we noted that
a split exists among the circuits on this question. See
Nielsen v. Dickerson, 307 F.3d 623, 640-41 (7th Cir. 2002). We
noted there that the majority of our sister circuits, includ-
ing the Second, Eighth, and Ninth, have limited the defense
to factual and clerical errors, while a “growing minority”
have applied the defense to mistakes of law. Id. (quoting
Johnson v. Riddle, 305 F.3d 1107 (10th Cir. 2002)). Nielsen
notes that the majority view relies on an analogy to a
similar bona fide error provision in the Truth in Lending
Act. Yet, as Nielsen also observes, the Truth in Lending Act
specifically excludes mistakes of law, while the FDCPA has
no such exclusion. Nielsen, 307 F.3d at 640-41.
  We have no need to take sides on the circuit split in this
case, because, even assuming that AFNI’s mistake was a
mistake of law, it cannot prevail for other reasons. Unless
a party maintains reasonable procedures to avert a viola-
No. 07-4083                                             13

tion, the defense does not apply. Here, AFNI argues that it
maintained such procedures to prevent collecting unautho-
rized fees because it has a compliance committee that
reviews legal summaries prepared by the American
Creditor Association (“ACA”) and the Debt Bar Associa-
tion. AFNI also submits its form letters to the ACA. Hess
testified that he regularly reads excerpts of the relevant
Wisconsin statutes. The plaintiffs respond that AFNI’s
procedures are inadequate as a matter of law. The ACA
addresses only compliance with the FDCPA, not with
Wisconsin law or individual contracts. AFNI never con-
sulted an attorney in Wisconsin on state law issues, nor
did it ask a Wisconsin governmental agency whether it
was entitled to charge a collection fee as the owner of the
debt.
  AFNI’s steps do not amount to reasonable procedures, as
the statute uses that term. To the contrary, applying the
bona fide error defense here would essentially reward a
business’s ignorance of the law. Hess’s deposition implies
that AFNI never knew that charging a fee as the owner of
a debt was different from charging a fee as a service
provider for another entity:
     Q: So you—it’s your—was your understanding of
   whether collection fees are permitted on this type of
   accounts in the State of Wisconsin limited to the
   absence of information on it in that ACA manual prior
   to the lawsuit?
    A: That document as well as any other published
   bulletins that would have come to my attention.
14                                               No. 07-4083

       Q: Do you remember specifically any of those?
       A: There’s periodic notification of e-mails on a daily
     basis from the Debt Buyers Association, from the credit
     and collection industry associations, you know, late
     breaking news. So there was never anything that came
     to my attention otherwise. But the primary basis for
     our understanding of Wisconsin and its associated
     statutes would have been based on the ACA documen-
     tation.
In the end, AFNI is not arguing that it relied on an in-
formed, but mistaken, legal opinion. It is saying that
its ignorance of the law should be excused because it
attempted to keep itself informed about the law through
the various trade association communications. This is
not enough, in our view, to support the bona fide error
defense.
  AFNI also appeals the district court’s finding that AFNI
violated Wis. Stat. § 427.104(j), but AFNI’s argument is
limited to asserting that it did not know charging its 15%
fee violated the FDCPA. The district court found that AFNI
should have known it did not have the right to collect a
15% fee for the same reasons AFNI does not qualify for the
bona fide error defense. We agree with the district court.


                           * * *
  Our review of this case persuades us that the district
court was correct, on the record before it, to grant sum-
mary judgment in favor of the plaintiff class on its claims
No. 07-4083                                        15

based on the FDCPA and Wis. Stat. § 427.104(j). We
therefore A FFIRM the judgment of the district court.




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