Part 2 of 2.
3. Gallerizzo's Alleged Failure to Mail Verification of Debt Directly to Chaudhrys
The FDCPA mandates that when a consumer disputes a debt in writing, "the debt collector obtains verification of the debt and a copy of such verification is mailed to the consumer by the debt collector." 15 U.S.C.A. § 1692g(b) (emphasis added). Appellants argue that Gallerizzo never mailed any verification of the debt to them directly. Rather, he mailed the relevant correspondence and documentation to their attorney, allegedly in violation of § 1692g(b).
Appellants, however, disregard § 1692c(a)(2), which prohibits communications between the debt collector and a debtor who is represented by an attorney. 7 15 U.S.C.A. § 1692c(a)(2). Given the unmistakable
language of § 1692c(a)(2) and in the absence of any statutory exceptions, 8 basic rules of statutory construction compel us to conclude that when a debtor is represented by an attorney, verification must be sent to the attorney. See Freytag v. Commissioner of Internal Revenue , 501 U.S. 868, 877 (1991) ("Our cases consistently have expressed `a deep reluctance to interpret a statutory provision so as to render superfluous other provisions in the same enactment.'"). Therefore, the district court was correct in determining that Gallerizzo did not violate § 1692g(b) by addressing communications to Appellants' attorney, rather than directly to the consumers.
4. Jury Verdict that Gallerizzo Knowingly Attempted to Collect Legal Fees in Excess of Amount Properly Chargeable to Plaintiffs
Appellants maintain that the jury verdict that Gallerizzo knowingly and intentionally attempted to collect legal fees in excess of the amount properly chargeable to them, in violation of§ 1692e of the FDCPA, 9 was supported by the evidence in the case. Appellants argue that the district court, in granting Defendants' motion for judgment as a matter of law, inappropriately substituted its judgment for that of the jury. See Murdaugh Volkswagen, Inc. v. First National Bank of South Carolina , 801 F.2d 719, 725 (4th Cir. 1986) (noting that, in reviewing the trial court's decision regarding judgment notwithstanding the verdict, court of appeals "may not substitute [its] judgment of the facts for that of the jury or pass on the credibility of witnesses"). To support their contention, Appellants point to the court's own language: "The Court, having observed the witnesses, finds this contention not worthy of belief. First, the Court disbelieves the Plaintiffs based upon an evaluation of their credibility at trial." Appellants conveniently omit, however, that this quotation is in reference to a wholly different matter, the court's consideration of Defendants' motion for sanctions against Plaintiffs and their attorney, not the motion for judgment as a matter of law. Indeed, when considering the motion for judgment as a matter of law, the court explicitly noted that it "may not substitute its judgment for that of the jury, nor may it make credibility determinations."
Appellants further insist that the jury's verdict is supported by references in the redacted Research Memorandum to an increase in a "consumer credit line" from NationsBank. The references, Appellants argue, demonstrate that Defendants were researching issues pertaining to Appellants' Private Home Equity Line of
Credit, a consumer credit line with NationsBank unrelated to the Chaudhrys' debt under the Construction Loan that Gallerizzo was attempting to collect. To the contrary, Gallerizzo testified that the Chaudhrys' request for additional funding to finish construction of the Inglewood Home was reviewed under both the Home Equity Line and the Construction Loan. The use of the term "consumer credit line" related to the request for funds for the construction of the home and not solely to the Home Equity Line. Thus, the research was chargeable under the Construction Loan. As the trial court noted, Plaintiffs offered no evidence to rebut Gallerizzo's testimony. There was, therefore, no basis for the jury to find that the request to increase the consumer credit line was not related to the construction of the home. We find no error with the district court's grant of judgment as a matter of law in favor of Defendants.
5. Jury Verdict that Gallerizzo's Representations at the December 21, 1995 Meeting Were Not False, Deceptive, or Misleading
The Chaudhrys allege that Gallerizzo violated 15 U.S.C.A. § 1692e by promising, at the December 21st meeting, to provide them with the past due interest owed on the loan and that NMC would be willing to accept that amount in order to cure the defaults existing under the loan. The jury found that Gallerizzo did not deceive the Chaudhrys during the December 21st meeting, and the district court entered judgment in favor of Gallerizzo.
Appellants first charge that the district court improperly instructed the jury. In determining whether a debt collectors' act or communication constitutes a false, deceptive, or misleading practice under the FDCPA, Appellants urge that a court must assess the impact that the act or communication would have on the least sophisticated debtor. See United States v. National Financial Services, Inc. , 98 F.3d 131, 135-36 (4th Cir. 1996) (applying "least sophisticated debtor" standard to alleged violation of § 1692e). The court instructed the jury as follows:
When I refer to a person unsophisticated in matters of law or finance, I am referring to a person of reasonable intelligence who has a basic understanding and has a willingness to listen to what is being said with care. I am not referring to a person who places an unrealistic or irrational interpretation upon what was said. Appellants insist that the language does not comport with the "least sophisticated debtor" standard.
We review challenges to jury instructions for abuse of discretion. See Nelson v. Green Ford, Inc. , 788 F.2d 205, 208-09 (4th Cir. 1986). The test of the adequacy of jury instructions is whether the jury charge, construed as a whole, adequately states the controlling legal principle without misleading or confusing the jury. See Spell v. McDaniel , 824 F.2d 1380, 1395 (4th Cir. 1987). With this in mind, we believe that the court's instruction is consistent with the "least sophisticated debtor" doctrine which seeks to protect naive consumers, while "preserving a quotient of reasonableness and presuming a basic level of understanding." National Financial Services , 98 F.3d at 136. We are satisfied that the district court's instruction adequately informed the jury of the essential principles of the doctrine. We find no abuse of discretion.
Appellants also allege that, at the December 21st meeting, Gallerizzo refused to provide them with information about the interest arrearage, which if paid arguably would have prevented their default on the loan. Appellants maintain that Gallerizzo instructed them to put their request for the information in writing and that the bank would take no action until after responding to their proposal. Appellants insist that Gallerizzo never intended to provide the requested amount of interest arrearage. Rather, they argue, he acted solely to deceive them into delaying making the required interest payment so that he could accelerate the Construction Loan the following day.
Appellants' attorney tape-recorded the December 21st meeting, and, contrary to Appellants' assertions, the transcript of the recording contains no evidence of false or misleading representations by Gallerizzo. Throughout the meeting, Gallerizzo advised Appellants that he had no authority to bind the bank. He also
stated that there could be no agreement unless the Chaudhrys provided a release of the alleged claims that they were making against the bank, which they refused to do. Given the content of the recording and the fact that the Chaudhrys had no right under the Construction Loan to cure the default simply by paying the interest arrearage, there is clearly suffi- cient evidence for the jury to conclude that Defendants did not violate § 1692e. Therefore, it would be inappropriate to reverse the jury's decision.
Appellants finally argue that the district court improperly refused to permit the Chaudhrys to use the unredacted version of the January 4, 1997 letter written by Appellants' counsel. Appellants contend the court's refusal contributed substantially to the jury's verdict. The January 4th letter contains numerous allegations against NationsBank not at issue in the instant case, but the subject of a separate state action. The state allegations are not only of questionable relevance but also may have unfairly prejudiced Defendants. The district court's decision to disallow an unredacted version of the letter is well within the discretion afforded the district court with respect to evidentiary matters. 10 See Martin v. Deiriggi , 985 F.2d 129, 137 (4th Cir. 1993) (noting that decisions regarding the admission and exclusion of evidence are within the discretion of the trial court and should not be reversed on appeal absent an abuse of discretion).
6. Gallerizzo's Alleged Failure to Include Mandatory Language Required by § 1692e(11) in Letter to Plaintiffs' Settlement Attorney
Appellants allege a violation of § 1692e(11), which requires disclosure, in all communications to the consumer, "that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose." 15 U.S.C.A. § 1692e(11); see Carroll v. Wolpoff & Abramson , 961 F.2d 459, 461, (4th Cir.) (determining that the debt collection notification must be included in all correspondence), cert. denied , 506 U.S. 905 (1992). Gallerizzo sent a letter dated January 24, 1996 to the Chaudhrys' settlement attorney Diane Fox, instructing that "[p]ayment of the aforementioned amounts should be tendered to NMC prior to 2:00 p.m. on January 25, 1996 ...." Because Gallerizzo suggested that the Chaudhrys tender payment to NMC, Appellants argue that the letter was a continuation of Gallerizzo's efforts to collect the debt. As such, it required the inclusion of the § 1692e(11) debt collection notification. As explained above, however, Gallerizzo's letter was not an act to collect a debt, but rather was sent at Fox's request so that she could have an accurate payoff figure at the refinancing meeting. If the letter does not constitute an attempt to collect a debt, § 1692e(11) notification is not required.
The district court, citing Count VII, 11 granted sanctions against Plaintiffs pursuant to 15 U.S.C.A. §
1692k(a)(3) and against their attorney pursuant to Fed. R. Civ. P. 11 12 and 28 U.S.C.A. § 1927. 13 The court, concluding that "the case was brought in bad faith and for the purposes of harassment of the Defendants," ordered Plaintiffs to pay Defendants $5000 and Plaintiffs' counsel to pay $10,000. We review the district court's decision to grant sanctions for abuse of discretion. See Cooter & Gell v. Hartmarx Corp. , 496 U.S. 384, 405 (1990) (noting that "an appellate court should apply an abuse-of- discretion standard in reviewing ... a district court's Rule 11 determination"); Carroll v. Wolpoff & Abramson , 53 F.3d 626, 628-29 (4th Cir. 1995) (determining that abuse of discretion standard governs review of awards under § 1692k(a)(3)); Mittier v. Burton , 896 F.2d 848, 855 (4th Cir. 1990) (reviewing sanctions award under § 1927 for abuse of discretion.)
In Cooter & Gell v. Hartmarx Corp. , the Supreme Court noted that "Rule 11 imposes a duty on attorneys to certify that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well grounded in fact, legally tenable, and `not interposed for any improper purpose.'" Id. at 393. "A complaint containing allegations unsupported by any information obtained prior to filing, or allegations based on information which minimal factual inquiry would disprove, will subject the author to sanctions." 14 In re Kunstler , 914 F.2d 505, 516 (4th Cir. 1990), cert. denied , 499 U.S. 969 (1991). Similarly, section 1692k(a)(3) allows the court, upon a finding that an action "was brought in bad faith and for the purpose of harassment," to award to the defendant reasonable attorney's fees. 15 U.S.C.A. § 1692k(a)(3). The district court, the Supreme Court has noted, "is better situated than the court of appeals to marshall the per- tinent facts and apply the fact-dependent legal standard mandated by [a sanctions award]." Cooter & Gell , 496 U.S. at 402 ; see also Brubaker , 943 F.2d at 1374 ("The district court is in the best position to determine whether sanctions should be imposed and, if so, how much.").
The Chaudhrys claim that, at the December 21, 1995 meeting, Gallerizzo promised that they could simply pay the interest arrearage to prevent default on the loan. The trial court, relying on the tape- recorded transcript of the December 21st meeting, determined that no "... rational person could have interpreted what was said at the meet- ing to be the promise that Plaintiffs and their counsel contend was made by Mr. Gallerizzo." We agree. We see nothing in the record that evidences such a promise. In fact, Gallerizzo's repeated admonitions that he was not authorized to commit the bank to any agreement and that the bank would not negotiate further without a signed release suggest just the opposite. Furthermore, Gallerizzo indicated at the meeting that the bank could require payment of the loan in full. Appellants' claim that Gallerizzo made a representation that was false, misleading, and deceptive is utterly without factual foundation. Given the substantial justification for its finding, the district court did not abuse its discretion by imposing what we believe to be appropriate and reasonable sanctions against Appellants and their attorney. By so ruling, we in no way intend to discourage the legitimate pursuit of FDCPA litigation but, rather, hope to deter groundless claims like the one advanced here.
For the foregoing reasons, we affirm the district court's ruling in totum. AFFIRMED
1. The Construction Loan contained various loan documents, including a Residential Construction Loan Agreement, a Construction Loan Rider, an Adjustable Rate Note and an Adjustable Rate Rider.
2. Under the Construction Loan, the Chaudhrys had no right to cure the default by simply paying past due interest. Moreover, the Construction Loan required that if the Inglewood Home was not completed by December 31, 1995, the Chaudhrys would have to pay all sums due by such date.
3. On the same date, the Chaudhrys initiated a lawsuit against NMC, NationsBank, N.A., various NationsBank loan officers, Gallerizzo and Gebhardt & Smith in the Circuit Court of Maryland for Montgomery County, Case No. 150185 (the "State Action"), in which the Chaudhrys alleged numerous lender liability claims. Gallerizzo and Gebhardt & Smith were dismissed with prejudice by the state trial court prior to the commencement of trial in the instant case.
4. The materials previously had been reviewed by another district court judge who subsequently recused himself.
5. Section 1692g(a), in pertinent part, states: (a) Notice of debt; contents
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt col- lector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing --(1) the amount of the debt; ***
15 U.S.C.A. § 1692g(a).
6. Section 1692g(b) provides as follows: [I ]f the consumer notifies the debt collector in writing within [30 days of the initial notice] that the debt, or any portion thereof, is disputed, ... the debt collector shall cease collection of the debt, or any disputed portion thereof, until verification is mailed to the consumer.
15 U.S.C.A. § 1692g(b).
7. Moreover, at the end of the December 21st meeting, Appellants' counsel specifically requested that all communications be directed to him.
8. Section 1692c(a)(2) permits communications between the debt collector and a consumer represented by counsel where "the attorney fails to respond within a reasonable period of time to a communication from the debt collector or ... consents to direct communication with the consumer." 15 U.S.C.A. § 1692c(a)(2).
9. Under § 1 692e, "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with collection of any debt." 15 U.S.C.A. § 1692e.
10. Appellants also allege that the district court committed other supposedly prejudicial errors. The allegations are utterly without merit, however, so we decline to discuss them at length here. For example, Appellants object to the wording of certain questions to the jury, yet Appellants expressly accepted the language at trial. It seems inappropriate now to allow Appellants to argue that the questions should have been phrased differently.
11. In Count VII, the Chaudhrys claim that, at the meeting of December 21, 1995, Gallerizzo made false, deceptive, and misleading statements to them in violation of § 1692e of the FDCPA.
12. Rule 11 provides as follows:
(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonable based on a lack of information or belief. (c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. Fed. R. Civ. P. 11(b), (c).
13. Section 1927 provides that an attorney "who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C.A. 1927 (West 1998).
14. While distinct from Rule 11, section 1927 also requires "a finding of counsel's bad faith as a precondition to the imposition of fees." Brubaker v. City of Richmond , 943 F.2d 1363, 1382 n.25 (4th Cir. 1991).
URL to case report: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=4th&navby=case&no=981024P