September 10, 2018 Practice Points

Evidence of Debt Collector’s Net Worth under FDCPA

In Tourgeman v. Nelson & Kennard, the Ninth Circuit held that the consumer bears the burden to present evidence at trial of the debt collector’s net worth in order to establish entitlement to class statutory damages under the Fair Debt Collection Practices Act.

By Maxwell W. Mahoney

In Tourgeman v. Nelson & Kennard, Tourgeman and other members of a class action sought statutory damages against Nelson & Kennard, a debt collector, for violating the Fair Debt Collection Practices Act (FDCPA). The FDCPA, under 15 U.S.C. § 1692k(a)(2)(A) and (B), entitles class members to additional statutory damages as follows:

A. in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or

B. in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector

(Emphasis added.)            

After exchanging motions in limine regarding which party bore the burden of proving Nelson & Kennard’s net worth to establish the maximum award of statutory damages under § 1692k(a)(2)(B), the Southern District of California found that fundamental legal principles and the statute’s own language and structure placed that burden squarely on Tourgeman’s shoulders. Because Tourgeman lacked sufficient evidence to establish Nelson & Kennard’s net worth, the district court dismissed his § 1692k(a)(2) claim for statutory damages. Tourgeman appealed the district court’s decision, but the Ninth Circuit agreed with the district court.

Initially, the Ninth Circuit looked to fundamental legal principles to determine which party bears the burden when a statute does not provide a clear answer. Specifically, the court noted that it is a basic proposition of law that a plaintiff must prove their own case, including the amount of damages. This principle is especially important where a statute is silent as to which party bears the burden of proof.

Moving beyond basic legal principles, the Ninth Circuit examined the statute’s text to discern Congress’s intent. Plainly, the court noted that if Congress desired to stray from the fundamental principle that the plaintiff bears to the burden of proof, they would have provided language to that effect. For example, in two other instances, Congress shifted the burden to the debt collector under the FDCPA: section 1692k(c)’s “bona fide error defense” and section 1692k(e)’s safe harbor defense when complying with Consumer Financial Protection Bureau. The Ninth Circuit used these instances of unambiguous burden shifting to support its finding that Congress intended to place the burden of proof under § 1692k(a)(2)(B) on the plaintiff.

Tourgeman argued that it was unfair to place the burden on the plaintiff to prove the debt collector’s net worth because the plaintiff lacks access to that information. While the court recognized this difficulty, it noted that access to information was not determinative in the face of unambiguous statutory text placing the burden on the plaintiff. The Ninth Circuit also stated that Tourgeman had every opportunity to obtain information about Nelson & Kennard’s net worth. For example, a protective order was entered allowing Tourgeman access to Nelson & Kennard’s financial information, and the district court ordered Nelson & Kennard to comply with that order.

Tourgeman also challenged 15 U.S.C. § 1692k’s structure, arguing that the statute as written allows the court to disregard subsection (a)’s requirement of establishing the debt collector’s maximum liability for statutory damages and move directly to establishing an amount of damages by using the non-exhaustive list of factors in subsection (b). Tourgeman argued that the debt collector could then introduce evidence of its net worth to limit the amount of damages. The Ninth Circuit again disagreed with Tourgeman’s attempt to shift the burden to Nelson & Kennard.

The Ninth Circuit found that § 1692k’s structure provides a two-step process for calculating statutory damages. First, the factfinder must determine a debt collector’s maximum liability under § 1692k(a) by taking evidence from the plaintiff regarding the debt collector’s net worth. Then, the factfinder must determine the amount of that liability by using the non-exhaustive list of factors in subsection (b). The court further noted Congress’s use of the phrase “the lesser of” in  § 1692k(a)(2)(B) requires the factfinder to determine the debt collector’s net worth to establish a maximum of damages before determining the total amount of statutory damages.

The Ninth Circuit’s Tourgeman decision provides clarity on not just which party bears the burden under 15 U.S.C. § 1692k(a)(2)(B) to establish the amount of statutory damages, but also how parties should approach a § 1692k statutory damages claim. According to Tourgeman, the class member plaintiffs seeking statutory damages should first establish the debt collector’s maximum liability by introducing evidence of the debt collector’s net worth. While the plaintiffs may not have superior access to information regarding the debt collector’s net worth, they must attempt to prove their claim and should attempt to obtain a protective order like the plaintiffs did in Tourgemen. After the plaintiffs introduce evidence of the debt collector’s net worth and establish a maximum amount of damages, the class members should use the non-exhaustive list from § 1692k(b) to provide evidence or the appropriate amount of statutory damages.

Maxwell W. Mahoney is an associate with Jennings Strouss in Phoenix, Arizona.