In Smith v. Stewart, Zlimen & Jungers, Ltd. (8th Cir. 2021) 990 F.3d 640, the 8th Circuit Court of Appeals upheld the dismissal of consolidation actions under the FDCPA against the same debt collection law firm and declined to hold that a FDCPA claim is stated ipso facto because the debt collector lost the underlying collection action.
In underlying collections actions filed by the debt collection law firm, the collections claims were dismissed for lack of evidence of standing:
On February 15, 2019, counsel for Smith and Washington appeared in the Conciliation Court to contest liability. They challenged whether SZJ (on LVNV’s behalf) possessed, or could present evidence establishing, a valid and complete chain of assignment for the alleged debts between the original creditors and LVNV. The only document SZJ presented to the court was a “redacted computer printout that was not the actual attachment to any of the alleged bills of sale between the Original Creditor[s] and [LVNV].” On February 28, 2019, the Conciliation Court agreed with Smith and Washington and dismissed LVNV’s claims for lack of standing, noting that LVNV “failed to provide evidence that the particular debt at issue was included in the assignment referenced in the documentation or bill of sale.”
The plaintiffs then turned around and filed actions under the FDCPA against the collections law firm:
In March 2019, Smith and Washington filed complaints in the District of Minnesota alleging that SZJ’s conduct in bringing the state court debt-collection actions violated the FDCPA. First, they alleged that SZJ violated 15 U.S.C. § 1692e by alleging in the Statements of Claim that Smith and Washington owed disbursements, in addition to alleged debts and the filing fee, “despite there being no possible entitlement to such additional disbursements, and no intention in SZJ’s part to seek to recover [any disbursements].” Second, they alleged that SZJ violated 15 U.S.C. § 1692f by bringing debt-collection lawsuits without sufficient evidence to establish a valid and complete chain of assignment between Smith and Washington’s original creditors and LVNV, in violation of the Conciliation Court’s Amended Standing Order, see infra Section II.B, which governed the type of admissible evidence a plaintiff had to possess and present to the court to pursue a consumer credit lawsuit.
The 8th Circuit of Court of Appeals agreed with the district court, which dismissed the FDCPA claims, and declined to hold that an FDCPA claim is stated ipso facto because the debt collector lost the underlying debt collection action:
Because Smith and Washington did not plead any additional facts to indicate that SZJ took anything but a good faith legal position in its prayer for relief, the complaints failed to state plausible claims that SZJ made false, deceptive, or misleading representations in violation of § 1692e. See Iqbal, 556 U.S. at 678 (noting that, when considering a motion to dismiss, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice”)
In their complaints, Smith and Washington do not allege that SZJ sought to collect debts that were not in fact owed. Rather, they allege that SZJ lacked evidence sufficient to demonstrate that its client had standing to sue on those debts. Even though SZJ failed to meet its evidentiary burden as set forth in the Amended Standing Order, it was nevertheless entitled to bring a good faith claim to collect the alleged debts. See Hemmingsen, 674 F.3d at 819 (noting “the FDCPA’s apparent objective of preserving creditors’ judicial remedies” (cleaned up)). Smith and Washington do not allege any facts to suggest that SZJ was doing anything to the contrary; without more, they fail to state a plausible claim for relief under § 1692f(1).