Utah Federal Court Rules First Amendment Petition Clause Provides Immunity From FDCPA Claims | Ballard Spahr srl

A Utah Federal District court recently ruled in two cases that the petition clause of the United States Constitution’s First Amendment grants debt collectors immunity from FDCPA claims. The two cases are Holmes v. Crown Asset Management, LLC and Reyes v. NAR Inc. and Olson Associates, CP. Both decisions were rendered by Justice Howard C. Nielson, Jr.

In both cases, the defendants initially filed lawsuits in Utah state court to collect the underlying debts. In Holmes, the state court ruled in favor of Crown Asset Management, which had bought the debts from a credit card issuer. In Reyes, after filing the action in state court, the defendants, a debt collector hired by the creditor and a law firm hired by the debt collector, sent the plaintiff an offer to settle that included a proposition of confession of judgment. The plaintiff deleted the language of confession and returned the settlement agreement to the defendants, but the parties ultimately did not reach a settlement. Plaintiffs in both cases subsequently sued in federal district court, alleging violations of FDCPA and Utah law.

In both cases, the court first considered whether the petition clause provided immunity from the FDCPA’s claims. The petition clause states that “Congress shall not make any law … restricting … the right of the people … to petition the government for redress of their grievances.” According to the court, “a legal action to collect a debt is a request for redress of grievances within the meaning of the immunity of the petition clause.” Thus, the court concluded that the petition clause provides immunity from legal action by the FDCPA based on collection actions in state courts, except where the collection action is considered a “fictitious petition”.

Having reached this conclusion, the court analyzed the facts in the two cases as follows:

  • In Holmes, the plaintiffs claimed that the defendant debt buyer violated the FDCPA and state law by suing in state courts without registering under the Utah Collection Agency Act (UCAA ). The court first noted that the defendant had prevailed in the state’s lawsuits and cited the wording of a United States Supreme Court decision stating that “a winning lawsuit is by definition an effort. reasonable petition or reparation and therefore not a sham ”. The court then said that even if the defendant was unsuccessful, it would still have concluded that the state lawsuits were not fictitious petitions and therefore protected by the petition clause because the defendant could have reasonably believed that he was not required to register under the UCAA. to file a recovery action. The court ruled that it was not clear under the UCAA whether a company that collects debts on its own account or a company involved in collections that is not based in Utah was subject to the ‘registration requirement. Due to the lack of clear statutory language, the court was unwilling to interpret the UCAA to limit the defendant’s access to the courts. Noting that this was not about deciding whether the NCAA in fact required the defendant to be registered to bring an action in state court, the court held that, since the defendant’s lawsuits were protected by the petition clause, it was enough for him to determine whether the defendant could reasonably have believed there was no need to register. As a result, the court dismissed the plaintiffs’ FDCPA claims and refused to exercise additional jurisdiction over their claims under state law.
  • In Reyes, the plaintiff claimed that the defendants violated the FDCPA and state law by including a collection fee based on a percentage in the amount claimed in the state lawsuit and by including a admission of judgment in the proposed settlement agreement. The plaintiff argued that Utah law did not allow defendants to recover collection costs because the agreement creating the underlying debt did not meet the requirements of Utah law regarding imposition of collection costs. After reviewing the relevant provisions of Utah law, the court found support for the defendants’ position that they had met these requirements. As he did in Holmes, the court noted that it did not decide whether they had in fact met these requirements, and that because the defendants were protected by the petition clause, it was sufficient for it to determine whether they could reasonably believe that they were ‘complied with Utah law. The court concluded that the defendants could reasonably have had this belief and, therefore, could also have reasonably believed that their attempt to recover the collection costs did not violate the FDCPA because it was “permitted by law”. Further, having found that the defendants’ actions were objectively reasonable, the court could not find that the defendants had used false, deceptive or deceptive means to recover costs in state court in violation of the FDCPA. . Regarding the plaintiff’s claim that the defendants violated the FDCPA by including an admission of judgment in the proposed settlement agreement, the court first indicated that it was not certain that the immunity of the petition clause extends to an offer to settle that has not been accepted or approved by the court. The court determined that it did not need to decide this issue because the plaintiff had failed to establish that the confession of judgment was prohibited by Utah law. As a result, the court dismissed the plaintiff’s FDCPA claims and refused to exercise additional jurisdiction over its state law claims.

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