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Fourth Circuit Court of Appeals holds that a plaintiff does not need to dispute an alleged debt in writing in order to recover from a debt collector under federal consumer protection statute.

Russell v. Absolute Collection Services, Inc.
___ F.3d ___ (4th Cir. August 15, 2014)

by Wayne C. Heavener, Associate
Semmes, Bowen & Semmes (

Available at:

In Russell v. Absolute Collection Services, Inc., the United States Court of Appeals for the Fourth Circuit held that a plaintiff suing under the federal Fair Debt Collection Practices Act (FDCPA) need not first contest an alleged debt with a defendant debt collector in order to maintain his or her claims under the statute. Writing for the Court, Judge Henry Franklin held that a debt collector violated the FDCPA when it threatened to report the plaintiff to national credit bureaus on a debt that plaintiff had already paid in full. Further, the Court affirmed the trial court’s decision to exclude evidence that the debt collector employed a third-party company to verify whether certain debtors’ accounts had been paid, because the defendant debt collector failed to timely disclose the existence of the third-party auditing company in discovery.

In 2008, Diane Russell (“Plaintiff”) became indebted to Sandhills Emergency Physicians (“Sandhills”) when she failed to remit a payment of $501.00 for medical services rendered to her husband. To collect the debt, Sandhills contracted with Absolute Collection Services, Inc. (“Defendant”) to recover Plaintiff’s outstanding $501.00 balance. On December 8, 2008, Defendant sent Plaintiff a collection letter advising her that Sandhills “authorized us to extend to you a courtesy which allows you thirty (30) days in order to pay the balance on your account and prevent further, more serious collection activity.” Defendant also made multiple phone calls to Plaintiff before Plaintiff paid the entire $501.00 by mailing a check directly to Sandhills on December 30, 2008. This payment was applied to Plaintiff’s account.

Over the course of the following two (2) months, Defendant continued to contact Plaintiff to collect the $501.00. Plaintiff informed Defendant by telephone that she had paid Sandhills on the alleged debt. Defendant’s employees noted Plaintiff’s response in their notes, but nonetheless continued their collection efforts by telephoning Plaintiff and sending her collection letters. On March 31, 2009, Defendant sent Russell a collection letter that threatened to report the alleged debt to the national credit bureaus. Defendant finally stopped contacting Plaintiff after Plaintiff filed a complaint with the Better Business Bureau.

Plaintiff filed an action in federal district court alleging violations of the FDCPA and similar state consumer-protection laws. The FDCPA makes it unlawful for debt collectors to make false or deceptive statements in the course of their collection activities. If held to be in violation of the FDCPA, debt collectors are liable to the debtor for actual damages, costs, reasonable attorneys’ fees, and — at the district court’s discretion — up to $1,000.00 in statutory damages. The FDCPA provides debt collectors with a “bona fide error defense,” which excludes liability for the debt collector’s FDCPA errors if the debt collector can show by a preponderance of the evidence, that (1) it unintentionally violated the FDCPA; (2) the violation resulted from a bona fide error; and (3) it maintained procedures to avoid the violation.

Defendant asserted the bona fide error defense to Plaintiff’s claims. After the close of the discovery period, Plaintiff moved for summary judgment. Defendant opposed Plaintiff’s motion, arguing that it had raised a genuine dispute of material fact with respect to its bona fide error defense. In support, Defendant submitted an affidavit from its chief operating officer explaining that its bona fide error defense was based on its practice of asking debtors for proof of payment as well as its reliance upon Sandhills to report subsequent payments on accounts that have been referred for collection. The district court reopened discovery for the limited purpose of Defendant producing internal procedures that existed between Defendant and Sandhills. In response, Defendant revealed for the first time that a third-party entity was responsible for sending Defendant weekly reports showing payments made directly to Sandhills. Defendant also identified, for the first time, the manager of its payment processing department as a witness with knowledge of Defendant’s internal procedures.

On a motion in limine filed by Plaintiff, the district court excluded Defendant’s evidence regarding its third-party auditing entity and the testimony of Defendant’s payment processing manager. The trial court premised its decision on the untimeliness of Defendant’s disclosures, and the fact that Defendant’s delay in producing this information was neither substantially justified nor harmless. The case proceeded to a jury trial. At the close of her case, Plaintiff moved for judgment as a matter of law. The Court granted judgment with respect to Plaintiff’s FDCPA claims, and submitted Plaintiff’s state law claims to the jury. The jury returned a verdict for Plaintiff. Plaintiff was awarded $1,000 in statutory damages under the FDCPA, $6,000 in statutory damages under state law, and $30,501 in actual damages. Defendant filed motions for a new trial and relief from judgment, which were denied.

On appeal to the Fourth Circuit Court of Appeals, Defendant argued that the trial court committed error by entering judgment for Plaintiff on her FDCPA claims and in excluding evidence of Defendant’s third-party auditing company. In particular, Defendant argued that a debtor proceeding under the FDCPA must dispute his or her debt in writing within thirty (30) days of receiving the initial collection letter to prevail on his or her federal claims. The Court rejected Defendant’s argument. The Court found that nothing in the text of the FDCPA suggests that a debtor's ability to state a claim under the FDCPA is dependent upon the debtor first disputing the validity of the debt in writing. Further, the Court found that the remedial purpose of the FDCPA favors allowing debtors to obtain a remedy under the statute without having to first contest the debt. The Court also found that Defendant’s letter threatening to report Plaintiff to the national credit bureaus constituted a “deceptive means to collect or attempt to collect any debt,” and was therefore violative of the FDCPA.

As to Defendant’s alleged evidentiary error, the Court held that the trial court appropriately did not abuse its discretion in excluding Defendant’s evidence of a third-party auditing company. The Court noted that, in determining whether a party’s non-disclosure is substantially justified or harmless, a court should consider (1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence. In this case, the Court held that Defendant’s failure to disclosure the existence of its third-party company or the testimony of its payment manager was neither harmless nor justified.