Stephanie Reygadas v. DNF Associates, LLC

United States Court of Appeals
For the Eighth Circuit
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No. 19-3167
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Stephanie Reygadas
lllllllllllllllllllllPlaintiff - Appellee
v.
DNF Associates, LLC
lllllllllllllllllllllDefendant - Appellant
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Appeal from United States District Court
for the Western District of Arkansas - Ft. Smith
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Submitted: June 18, 2020
Filed: December 14, 2020
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Before LOKEN and GRASZ, Circuit Judges, and CLARK*, District Judge.
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LOKEN, Circuit Judge.
Appellant DNF Associates, LLC (“DNF”), purchased a debt that Stephanie
Reygadas owed to an online retailer, hired a law firm, and brought a collection action
in state court. Reygadas retained an attorney and moved to dismiss the complaint for
*The Honorable Stephen R. Clark, United States District Judge for the Eastern
District of Missouri, sitting by designation.

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insufficient process and service of process. When DNF did not respond, the court
dismissed its claim. DNF then hired a licensed debt collection agency, Radius Global
Solutions, LLC (“RGS”), to collect Reygadas’s debt. DNF provided RGS
information about the outstanding debt but did not tell RGS that Reygadas had
retained an attorney in the state court action. RGS sent Reygadas a letter offering to
settle. She then commenced this lawsuit, alleging, inter alia, that DNF violated the
federal Fair Debt Collection Practices Act (“FDCPA”), and the Arkansas Fair Debt
Collection Practices Act (“AFDCPA”), when RGS contacted her directly without the
consent of her attorney. See 15 U.S.C. § 1692c(a)(2); Ark. Code Ann.
§ 17-24-504(a)(2).
DNF moved for summary judgment, arguing it was not a “debt collector” under
either statute. The district court denied DNF’s motion and, sua sponte, granted partial
summary judgment in favor of Reygadas on the question of DNF’s liability. The
court concluded that (i) DNF qualifies as a “debt collector” because its principal
purpose is “the collection of any debts,” (ii) RGS was acting as DNF’s agent, and (iii)
DNF is liable for the violation arising from RGS’s direct contact with Reygadas
because DNF had actual knowledge Reygadas was represented by counsel. Reygadas
v. DNF Assocs. LLC, No. 2:18-CV-02184, 2019 WL 2146603, at *1-3 (W.D. Ark.
May 16, 2019). The district court declined to certify an interlocutory appeal. See 28
U.S.C. § 1292(b). Reygadas then accepted a $4,000 offer of judgment, and final
judgment was entered in her favor. DNF now appeals. Reviewing the grant of
summary judgment de novo, we conclude that, while DNF qualifies as a “debt
collector” under both statutes, Reygadas did not present sufficient evidence to
establish that RGS’s actions may be imputed to DNF as a matter of law. Dunham v.
Portfolio Recovery Assocs., LLC, 663 F.3d 997, 1000 (8th Cir. 2011) (standard of
review).1 Accordingly, we vacate the judgment and remand.
1The parties agree that Reygadas’s AFDCPA claims depend upon our
interpretation of the FDCPA.
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I. The Debt Collector Issue.
Congress enacted the FDCPA in 1977 “to eliminate abusive debt collection
practices by debt collectors.” 15 U.S.C. § 1692(e). In the typical debt collection
scenario, a creditor such as a retailer or credit card company originates consumer debt
and initially seeks to collect the debt if the consumer does not pay on time. If the debt
becomes seriously overdue, the originating creditor contracts with an independent
debt collector, who too often engaged in a myriad of abusive collection practices that
Congress sought to restrict or prohibit in the FDCPA. See S. Rep. No. 95-382, at 2-4,
7 (1977); H.R. Rep. No. 95-131, at 2-4 (1977). Because Congress’s focus was on the
practices of independent debt collectors, the statute excludes from the definition of
“debt collector” any creditor “collecting his own debts” using his own name, and
employees and affiliates “collecting debts for such creditor.” 15 U.S.C.
§ 1692a(6)(A), (B), (F).
Unpaid consumer debt is an asset of the creditor. Like other accounts
receivable, consumer debt can be assigned, sold, or transferred in ways such as
mortgage foreclosure or discounting to the creditor’s bank, in which case the risk of
non-collection passes to the transferee. An issue Congress faced in drafting the
FDCPA was whether buyers or transferees of consumer debt should be treated as
“debt collectors,” subject to the full range of FDCPA prohibitions, or as originating
creditors, largely exempt from those prohibitions. Congress addressed the issue by
defining who is a “debt collector” in the alternative:
The term “debt collector” means any person who uses any
instrumentality of interstate commerce or the mails in any business the
principal purpose of which is the collection of any debts, or who
regularly collects or attempts to collect, directly or indirectly, debts
owed or due or asserted to be owed or due another.
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15 U.S.C. § 1692a(6). These have come to be known as the “principal purpose” and
the “regularly collects” definitions. Schlaf v. Safeguard Prop., LLC, 899 F.3d 459,
464 (7th Cir. 2018).2
DNF is a “debt buyer,” an independent entity that purchases defaulted
consumer debt from originating creditors such as retailers, utilities, and credit card
issuers (or from intermediary purchasers) and contracts with third parties to collect
it. See Fed. Trade Comm’n, Collecting Consumer Debts: The Challenges of Change
13-14 (2009). Some debt buyers package and resell portfolios of defaulted debt;
others seek to collect. Id. at 13. DNF calls itself a “passive” debt buyer because it
purchases defaulted consumer debt and contracts with third parties, such as law firms
and licensed debt collection agencies, to collect the debt. Advocates routinely assert
that Congress did not face the issue whether debt buyers such as DNF are “debt
collectors” because “the advent of the market for defaulted debt represents one of the
most significant changes to the debt market generally since the [FDCPA]’s passage.”
Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1724 (2017) (cleaned up).
While it is certainly true that the debt market has evolved since 1977, including
explosive growth of debt buyers such as DNF, it is not true that the protracted debates
in Congress preceding passage of the FDCPA failed to recognize this issue:
Mr. TAYLOR. Mr. Chairman . . . in the event a retailer discounts
paper to a bank . . . and . . . it is the custom for the bank to engage in the
collection of that account. Would that be covered under this?
Mr. WYLIE. . . . If the bank turns the bill over to another person
to collect the debt for a fee and that person earns his livelihood
collecting debts, he would be covered, but the bank would not be.
2The statute lists additional definitions of debt collector and several exclusions
in 15 U.S.C. § 1692a(6)(A)-(F). The AFDCPA largely tracks these definitions. The
“principal purpose” and “regularly collects” definitions in the AFDCPA are
materially identical to the FDCPA. See Ark. Code Ann. § 17-24-502(5)(A).
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. . . . .
Mr. CHAPPELL. . . . I am concerned about the [practice in which
a] bill that is owed [is taken] from the first owner into a collection
agency which then becomes a bona fide owner. How do we address that?
Mr. WYLIE. I would say if [the buyer] becomes a bona fide
owner of a debt and his primary business is “not” debt collecting then
he is not covered by the bill. He is not an independent debt collector.
123 Cong. Rec. 10,245 (1977) (emphasis added). This legislative history is
consistent with our interpretation of the statute’s plain meaning and refutes the oft-
advanced argument that Congress did not consider whether debt buyers can also be
debt collectors.
Prior to the Supreme Court’s decision in Henson, the great majority of lower
courts held that debt buyers such as DNF were “debt collectors” under the FDCPA,
rejecting the argument that debt buyers are “creditors” rather than “debt collectors”
because they own the debt being collected. Because Congress excluded a collection
activity that “concerns a debt which was not in default at the time it was obtained,”
§ 1692a(6)(F)(iii), most courts concluded “that one attempting to collect a debt is a
‘debt collector’ under the FDCPA if the debt in question was in default when
acquired. Conversely . . . § 1692a means that an entity is a creditor if the debt it is
attempting to collect was not in default when it was acquired.” F.T.C. v. Check
Investors, Inc., 502 F.3d 159, 173 (3d Cir. 2007), cert. denied, 555 U.S. 1011 (2008);
see, e.g., McKinney v. Cadleway Props., Inc., 548 F.3d 496, 501 (7th Cir. 2008).
Contra Davidson v. Cap. One Bank (USA), N.A., 797 F.3d 1309, 1316 (11th Cir.
2015). We were not presented the issue prior to Henson, no doubt because the debt
buyer defendant in Dunham conceded that it was a debt collector under the FDCPA,
so the issue on appeal was whether the plaintiff was a “consumer.” 663 F.3d at 1001.
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In Henson, focusing on the plain language of the FDCPA’s “regularly collects”
definition, the Supreme Court held that debt buyers who “regularly purchase debts
originated by someone else and then seek to collect those debts for their own
account” are not debt collectors because they do not regularly seek to collect debts
“owed . . . another.” 137 S. Ct. at 1721-22, quoting 15 U.S.C. § 1692a(6). The
“regularly collects” definition “seems to focus our attention on third party collection
agents working for a debt owner -- not on a debt owner seeking to collect debts for
itself.” Id. at 1721. In reaching this conclusion, the Court expressly rejected the
argument that “debt purchasers surely qualify as collectors at least when they
regularly purchase and seek to collect defaulted debts.” Id. at 1724 (emphasis in
original). And it put aside the contention that “Congress never had the chance to
consider what should be done about” debt buyers because the market has significantly
changed; “it is never our job to rewrite a constitutionally valid statutory text under
the banner of speculation about what Congress might have done had it faced a
question that, on everyone’s account, it never faced.” Id. at 1724-25. However, of
significance here, the court recognized but expressly declined to consider “another
statutory definition of the term ‘debt collector’ -- one that encompasses those engaged
‘in any business the principal purpose of which is the collection of any debts.’” Id.
at 1721, quoting § 1692a(6).
We now consider how the “principal purpose” definition applies to debt buyers
such as DNF,3 bearing in mind the Supreme Court’s emphasis in Henson (and many
other cases) that it is our job “to apply faithfully the law Congress has written,” id.
at 1725, as well as another principle of statutory construction the Court applied to the
3Our statement in Schmitt v. FMA All., 398 F.3d 995, 998 (8th Cir. 2005), that
the FDCPA “does not regulate creditors’ activities at all” reflected the statute’s
fundamental “distinction between creditors and debt collectors.” Randolph v. IMBS,
Inc., 368 F.3d 726, 729 (7th Cir. 2004). The creditors involved in those cases -- a
bank and a dentist -- did not present the “principal purpose” issue posed by a debt
buyer such as DNF in this case.
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FDCPA’s complex debt collector provisions in Obduskey v. McCarthy & Holthus
LLP: “we generally presume that statutes do not contain surplusage.” 139 S. Ct. 1029,
1037 (2019) (cleaned up). Thus, we look primarily to the ordinary meaning of the
words “any business the principal purpose of which is the collection of any debts.”
Emphasizing that the Supreme Court in Henson overruled the so-called
“default test,” DNF argues that the debt buyer is a creditor -- a person “to whom a
debt is owed,” § 1692a(4) -- and “the only way a creditor can become a debt collector
is if the creditor uses a different name to collect debts owed to it,” as provided in the
second sentence of § 1692a(6). The principal purpose definition rests alongside the
regularly collects definition in 15 U.S.C. § 1692a(6), separated by the word “or.” If
Congress had intended the broad creditor exclusion urged by DNF, it would simply
have provided that a “debt collector” is “any business that regularly collects any
debt.” As the Supreme Court’s discussion in Henson confirms, we must give effect
to both definitions. See generally Advoc. Health Care Network v. Stapleton, 137 S.
Ct. 1652, 1659 (2017); Loughrin v. United States, 573 U.S. 351, 357 (2014).
If § 1692a(6) in its entirety were given the narrow reading urged by DNF, then
debt buyers such as DNF would be exempt from the FDCPA even when collecting
their own debts. In other words, DNF urges us to construe the FDCPA as covering
independent debt collectors when they perform collection actions for a fee, but not
when they collect consumer debt purchased for their own account. The argument
simply ignores the “principal purpose” definition, which applies to “any business” --
which obviously includes a debt buyer such as DNF -- whose “principal purpose . . .
is the collection of any debts.” As the Third Circuit observed in its first post-Henson
decision:
[The debt buyer defendant’s] admitted sole business is collecting debts
it has purchased. It uses the mails and wires for its business. . . . ‘Any
debts’ [in the principal purpose definition] does not distinguish to whom
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the debt is owed. And it stands in contrast to ‘debts owed or due . . .
another,’ which limits only the ‘regularly collects’ definition. . . .
Asking if [the defendant] is a debt collector is thus akin to asking if
Popeye is a sailor.
Tepper v. Amos Fin., LLC, 898 F.3d 364, 370 (3d Cir. 2018); accord Barbato v.
Greystone All., LLC, 916 F.3d 260, 269 (3d Cir.), cert. denied, 140 S. Ct. 245 (2019);
Davidson, 797 F.3d at 1316 n.8.4
DNF’s principal argument on appeal is that § 1692a(6) does not apply to
“passive” debt buyers who hire independent law firms and collection agencies to
collect the debts they purchase. The relevant definition of “collection” is “the act or
process of collecting,” DNF explains, citing Webster’s Ninth New Collegiate
Dictionary. The act or process of collecting requires an affirmative act of collecting,
which requires interaction with debtors. The principal purpose of a passive debt
buyer is “profiting on its investment,” with no direct “interaction” with consumers.
The word “interaction” is conspicuously absent from the statute. We can agree
a business’s “purpose” is shown by its actions. But the FDCPA’s principal purpose
definition does not require the debt collector to “collect” debts; it must have as its
“principal purpose . . . the collection of any debts.” Read together, the words
“purpose” and “collection” require an act whose purpose is collection. The
foreseeable and logical consequence of hiring lawyers and debt collection agencies
to collect debts DNF has purchased is itself evidence of purpose. For example, a
hospital’s purpose is providing healthcare to patients, even though it relies on
independent physicians and other entities to provide the care. And if that is DNF’s
4The above-quoted House debate reinforces our conclusion that the plain
meaning of the “principal purpose” definition reflects Congress’s intent to include
debt buyers whose principal business purpose is no different than that of the
independent credit agencies covered by the “regularly collects” definition.
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exclusive method of doing business, as the summary judgment record established,
then its “principal” purpose is “the collection of any debts.” As the Third Circuit
stated this rather obvious deduction:
[A]n entity that has the “collection of any debts” as its “most important”
“aim” is a debt collector under this definition. . . . As long as a
business’s raison d’être is obtaining payment on the debts that it
acquires, it is a debt collector. Who actually obtains the payment or how
they do so is of no moment.
Barbato, 916 F.3d at 267; see McAdory v. M.N.S. Assocs., LLC, 952 F.3d 1089,
1094 (9th Cir. 2020) (in using the noun “collection,” Congress “did not specify who
must do the collecting or to whom the debt must be owed”).
DNF counters that its “passive” investment business consists of “sitting idly,
hoping a consumer who is delinquent on her payment obligations will volunteer
payment.” The argument distorts reality. DNF does not sit idly by, it takes
affirmative steps to maximize collection of the debts it has purchased. Here, for
example, DNF hired an attorney and commenced a state court collection action,
signing sworn affidavits regarding the debt. When that failed, it hired RGS, a
licensed debt collection agency. Purchase and collection are not separate activities
for DNF; they are critical elements of its business plan. DNF’s reading of 15 U.S.C.
§ 1692a(6) impermissibly collapses the alternative definitions of debt collector.
DNF does not challenge on appeal the district court’s statement that its
“primary objective is to collect on debt accounts it purchased in order to turn a
profit.” Therefore, on this summary judgment record, having considered the plain
meaning of the statute’s text, together with the structure of the FDCPA, we conclude
the district court did not err in ruling as a matter of law that DNF is a “debt collector”
under § 1692a(6). We do not hold that any purchaser of defaulted consumer debt
qualifies as a “debt collector” under the “principal purpose” definition. There may
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be truly “passive” buyers of such debt, akin to those who invest in municipal or
commercial “junk bonds.” They would present a far different “principal purpose”
question, as would consumer debt buyers who engage in a wider array of activities,
such as originating consumer loans, reselling debt portfolios, or offering other
financial services. We also do not hold that any debt buyer that hires an independent
debt collector thereby becomes a debt collector under § 1692a(6).
II. Direct and Vicarious Liability.
The FDCPA does not impose liability simply for being a “debt collector.” It
prohibits a debt collector from engaging in various abusive, harassing, and misleading
practices, including “not communicat[ing] with a consumer in connection with the
collection of any debt if the debt collector knows the consumer is represented by an
attorney . . . and has knowledge of, or can readily ascertain, such attorney’s name and
address.” 15 U.S.C. § 1692c(a)(2). Here, DNF knew that Reygadas was represented
by counsel in the state court action, but it was RGS that sent the offending letter. To
establish DNF’s liability, Reygadas must show DNF is responsible for RGS’s action.
“[W]hen Congress creates a tort action, it legislates against a legal background of
ordinary tort-related vicarious liability rules and consequently intends its legislation
to incorporate those rules.” Meyer v. Holley, 537 U.S. 280, 285 (2003). In resolving
these issues, the Supreme Court applies “traditional agency principles” unless
Congress has specified otherwise. Id. at 287; see Schmitt, 398 F.3d at 998, applying
“general agency law” to the question of actual knowledge under § 1692c(a)(2).
Applying those rules, Reygadas cannot recover from DNF based on a theory
of vicarious liability for RGS’s action. RGS, the purported agent debt collector, must
have actual knowledge the debtor is represented by counsel to violate § 1692c(a)(2)
because “established agency law . . . dictates that while the knowledge of the agent
is imputed to the principal, the converse is not true.” Schmitt, 398 F.3d at 997. As
it is undisputed that RGS did not have knowledge Reygadas was represented by an
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attorney, RGS did not violate the FDCPA and Reygadas cannot prevail against DNF
on a theory of vicarious liability.
Reygadas instead argues that “DNF is directly, not vicariously, liable because
it took action through its agent that it could not lawfully take,” and therefore RGS’s
wrongful actions may be imputed to DNF. For support, Reygadas relies on
Restatement (Third) of Agency §§ 7.03 and 7.04, published thirty years after the
FDCPA was enacted, and on In re Sterling, a factually distinguishable bankruptcy
contempt case in which the Seventh Circuit noted that its reasoning “would not apply
in situations where there is no agency relationship,” such as a “creditor and debt-
collector relationship under the Fair Debt Collection Practices Act.” 933 F.3d 828,
834 n.6 (7th Cir. 2019). DNF responds that “Reygadas has not identified a single
[FDCPA] case that imposes direct liability on a party for actions undertaken by an
independent third party,” particularly for an independent third party’s lawful actions.
In granting summary judgment in favor of Reygadas, the district court stated:
“Agency law makes a principal liable for the acts of its agent if those acts are within
the scope of the agency.” In support, the court cited only Jones v. Filer, Inc., 43 F.
Supp. 2d 1052, 1056 (W.D. Ark. 1999), a case discussing vicarious, not direct,
liability in which defendant was granted summary judgment because plaintiffs failed
to prove an agency relationship.
In this case, Reygadas’s direct liability theory assumes that an agency
relationship existed between DNF and RGS. But we noted in Schmitt that “whether
the relationship between a creditor and its debt collector is one of principal-agent,”
or whether the debt collector was instead an independent contractor, was “not clear
on this record.” 398 F.3d at 998. Analysis of this issue under “traditional agency
principles” may differ when the creditor contracting with a debt collection agency is
itself a debt collector. The district court failed to address these issues, and the record
on appeal does not contain evidence establishing as a matter of law that DNF is
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directly liable, as a principal, for RGS’s lawful collection actions. Indeed, Reygadas
did not put into evidence the agreement between RGS and DNF, which may explain
why she did not move for summary judgment on the question of DNF’s liability.
Without such evidence, RGS’s acts cannot be imputed to DNF to establish direct
liability. Accordingly, we conclude the district court erred in granting partial
summary judgment in favor of Reygadas sua sponte.
The judgment of the district court is vacated and the case is remanded for
further proceedings not inconsistent with this opinion.
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