7th Cir.: Settlement of Claim with Creditor May Mean Dismissal of Claim Against Collector

Last week, insideARM published an article about a Northern District of Illinois case that barred a plaintiff's attempt at claim splitting where a Fair Debt Collection Practices Act (FDCPA) claim involved two separate accounts but arose from the same set of facts against the same defendant. The issue of claim splitting came up again in the midwest, this time before the Seventh Circuit Court of Appeals.

On August 13, 2018, the opinion in Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, Nos. 16-1578 and 17-3335 (7th Cir. Aug. 13, 2018) found that a plaintiff cannot recover for the same FDCPA claim against two separate defendants.

Factual and Procedural Background

Blatt, Hasenmiller, Leibsker & Moore, LLC (Blatt) filed a lawsuit against plaintiff to collect on a debt owed to Midland Funding, LLC (Midland) within the state circuit court -- but not the same municipal district court -- where plaintiff resides. After Blatt filed this suit, the Seventh Circuit published its opinion in Suesz v. Med-1 Solutions, 757 F.3d 636 (7th Cir. 2014) (insideARM previously published an article about the Suesz decision). In Suesz, the Seventh Circuit reversed its precedent and found that a debt collection action must be filed in the smallest venue available where the plaintiff resides. In the instant case, that means within the municipal district where plaintiff resides.

Blatt fixed this issue and refiled the case in the correct municipal district. Regardless, since the Seventh Circuit made its decision in Suesz retroactive, plaintiff sued Blatt and Midland for violating the FDCPA by not filing the collection action against plaintiff in the correct venue.

At some point, plaintiff settled the matter with Midland. The settlement agreement stated that it resolved all claims. Through a motion to dismiss and a later a motion to alter or amend the judgment entered against Blatt, both of which were denied by the district court, Blatt argued that plaintiff’s settlement with Midland made the FDCPA claim against Blatt moot. Blatt appealed these denials to the Seventh Circuit.

The Decision

The court, agreeing with Blatt, found that the claim against Blatt should have been dismissed by the district court. The court noted that the settlement agreement with Midland resolved all claims in the action, including the FDCPA claim against Blatt. Since plaintiff’s suit contained an additional non-FDCPA claim against Midland, the court briefly discussed whether a settlement can be apportioned between claims in such a way that a plaintiff still has a piece of the pie available against a second non-settling defendant. While the court noted that such a breakdown is allowed, it is not an issue here since the settlement agreement failed to provide any allocation for the settlement funds other than to resolve all claims.

The court also pointed to the text of the FDCPA where damages are limited to $1,000 on an individual basis per action, not per claim or per defendant. The court stated that Congress if congress intended FDCPA damages to be allowed in any other way, it would have explicitly stated so in the statute, citing as an example the Freedom of Access to Clinic Entrances Act. In the instant case, the claims against Midland and Blatt are indivisible -- they pertain to the same set of facts and are the same FDCPA violation. Since plaintiff is only entitled to one FDCPA award per action and that award was accounted for in the settlement with Midland, the Seventh Circuit found that the district court should have dismissed the case and plaintiff should not have been awarded attorneys fees from Blatt.

insideARM Perspective

In the judicial context, damages are intended to make an injured plaintiff whole again -- not better off than he or she was prior to the injury. Congress very clearly stated that as far as statutory damages are in play for the FDCPA, making plaintiff whole has a limit per action, not per claim or per defendant. The midwest appears to be a hotbed for FDCPA claim splitting, which attempts to make a plaintiff more than whole in regards to damages. The trend appears clear: one set of facts equals one FDCPA award. Since this is a Seventh Circuit decision, it will be binding precedent on the lower courts within the jurisdiction, which includes district courts in Illinois, Wisconsin, and Indiana. It can also be used as guidance to courts around the country if this issue pops up elsewhere.