Failure to Allege FDCPA Violation in State Court Leads to Tossing of Federal Suit

It can be frustrating when a consumer files a Fair Debt Collection Practices Act (FDCPA) lawsuit in federal court despite the existence of a previous or ongoing state court action to collect the debt at issue. Recently, however, the 10th Circuit Court of Appeals sided with a debt buyer, agreeing that a consumer’s federal FDCPA lawsuit could not proceed because the consumer should have raised his concerns in a previous state court action regarding the debt. 

In McMurray v. Forsythe Finance, Case No. 21-41014, a debt collector filed a suit against the consumer in state court over a deficiency balance from the repossession and sale of a vehicle. The consumer answered the state court complaint, but the collector was granted a default judgment after the consumer failed to respond to the debt buyer’s motion for summary judgment.

The consumer subsequently filed a lawsuit in federal court alleging that the debt buyer violated the FDCPA by failing to have a debt collection license when it filed the state court lawsuit to collect the debt. In response, the debt buyer argued that if the original action caused the injury, then the consumer’s claims should have been brought during the original state court action. (Editor's Note: Utah recently updated is licensing requirements, see here for details.)

The court agreed with the debt buyer, stating that since the alleged improper failure to have a license existed before the state court lawsuit was filed and arose from the same transaction as the state court claims (i.e., the attempt to collect the debt through the state court suit), the consumer could and should have raised his claims in the original state court action. Further, the Court noted that the consumer’s claims against the debt buyer were precluded since the results in the federal FDCPA action would nullify the previous state court judgment.    

insideARM Perspective

Creditors, debt collectors, and debt buyers are certainly familiar with the situation where a consumer does not respond to any attempts to contact them, does not answer, or appears after a suit is filed, and only pops up when they notice their wages are being garnished. This type of consumer can be extremely frustrating as they try to undo months or years of work and instead claim the debt collector did something wrong.

While it may not be the exact same scenario in every case, and state civil procedure laws may differ, this case still provides a boost to those collectors dealing with litigious pro se consumers or those who obtain legal counsel after a judgment has been entered.