Section 1692k of the Fair Debt Collection Practices Act (the “FDCPA”) allows for an award of damages in successful class actions against debt collectors found to have violated the FDCPA above and beyond the customary individual and statutory damages awards for such violations. Under this section, the additional damage awards are not to exceed the lesser of either $500,000.00 or 1% of the defendant debt collector’s net worth. However, a recent federal court decision demonstrates that the defendant’s own conduct and net worth may not be the only factors in considering such awards in the future.
In the case of Janetos v. Fulton Friedman & Gullace, LLP, Asset Acceptance, a Michigan-based debt collector, was in the practice of buying defaulted debts and subsequently trying to collect on those outstanding debts. To assist it in the collection of these debts, Asset Acceptance contracted with a separate debt collection agency, Fulton Friedman & Gullace, LLP (“Fulton”). Fulton violated the FDCPA by failing to make certain mandatory disclosures which are required under the FDCPA. In the Seventh Circuit’s opinion, the Court held that, “we think it is fair and consistent with the [FDCPA] to require a debt collector who is independently obliged to comply with the [FDCPA] to monitor the actions of those it enlists to collect debts on its behalf.” This language imposed vicarious liability onto Asset Acceptance, even though none of its own actions were a violation of the FDCPA. In other words, the Court held that Asset Acceptance could be liable for the acts of Fulton.
When the case was remanded back to the federal district court to resolve the issues of damages, U.S. District Court Judge Thomas M. Durkin applied the Seventh Circuit’s imposition of vicarious liability against Asset Acceptance to the amount of additional damages available to the class. Fulton, the entity which had actually violated the FDCPA, had a net worth of approximately zero, which meant that the class could not recover any additional award of damages. However, Asset Acceptance, who was found vicariously liable for the acts of Fulton, had a net worth which exceeded five million dollars, which meant a potential damages award to the class could be up to $500,000.00. Put simply, the class could only recover a sizable damages award if Asset Acceptance’s net worth was the applicable measure of damages, even though Asset Acceptance, itself, had not directly violated the law.
Judge Durkin reasoned that any additional damages that were to be assessed should include Asset Acceptance’s net worth for three reasons. First, he stated that additional damages apply to “any debt collector who fails to comply” with the FDCPA, and the FDCPA does not distinguish between debt collectors who are directly or vicariously liable. Second, the theory of vicarious liability ensures that a financially responsible principal will be responsible if its agents harm a third party while acting on the principal’s behalf. Third, if Asset Acceptance were to be allowed to hide behind Fulton’s insolvency, it would encourage other debt collectors to outsource unethical debt collection practices to judgment-proof debt collectors.
Both inside and outside of the debt collection industry, vicarious liability can expose your business to unforeseen risks through its relationships with other entities. The advocates at Rock Fusco & Connelly, LLC, can review these business relationships and help safeguard your connections to protect against liability for the acts and omissions of third-parties.