May a debt collector incur liability under the Fair Debt Collection Practices Act (FDCPA) by seeking to collect a debt under a state court judgment later determined to be void? Not according to the Third Circuit Court of Appeals in a nine-page opinion issued on January 11, 2023 in the case of Barbara Lowe v. FBCS, Inc. et al. The facts in Lowe are clearly peculiar, but the case offers some reassurance to collections firms facing FDCPA liability due to administrative mishaps in state court collection proceedings.
The dispute in Lowe arose from a state court collection action initiated by LVNV Funding, LLC and FBCS, Inc. in New Jersey Superior Court. On October 14, 2016, a week before the matter was scheduled for trial, the defendants filed a certification of proof of ownership of the account at issue. For unknown reasons, after receiving the certification, the superior court clerk erroneously entered a default judgment in favor of the defendants. Though the judgment was “effective” October 14, 2016, it was not mailed to the parties until November 7. On the morning of trial, the defendants submitted a letter to the superior court advising that the matter “should be marked as settled” and, therefore, did not appear for trial. The plaintiff, however, did appear. The trial judge, presumably unaware of the prior entry of default judgment, entered an order dismissing the case due to the defendants’ non-appearance. Alas, two contradictory orders issued by the same court relating to the same contested debt obligation.
Fast forward two years. On October 11, 2018, the superior court entered a docketing statement confirming default in favor of the defendants. The defendants began contacting the plaintiff in 2019 seeking payment on the debt at issue. The plaintiff, relying on the superior court’s dismissal order, disputed the debt. The plaintiff’s FDCPA lawsuit ensued, with the plaintiff claiming the defendants violated § 1692e of the FDCPA by illegally seeking to collect on a debt they knew to be unenforceable. The plaintiff also filed a motion in the superior court to vacate the erroneously entered default judgment. The superior court granted the motion to vacate one year later — declaring the defendants’ judgment void ab initio or “void from the beginning” due to the clerical error. Following the superior court’s order, the parties filed cross motions for summary judgment in the federal action. The district court granted summary judgment in favor of the defendants.
On appeal, the plaintiff argued first that the district court’s entry of summary judgment violated the Rooker-Feldman doctrine — an abstention rule under which federal district courts must refrain from exercising jurisdiction over claims that are, in essence, appeals from state court judgments. Specifically, the plaintiff argued that the district court’s grant of summary judgment effectively supplanted the superior court’s order vacating the default judgment. The Third Circuit was not persuaded — reasoning that the plaintiff neither lost in state court nor sought review of the state court judgment. To the contrary, the plaintiff was asking the district court to rely upon the superior court’s judgment. Rooker-Feldman, therefore, did not apply.
The plaintiff further argued that the defendants’ collection attempts were per se invalid because the superior court retroactively nullified the 2016 default judgment. In other words, because the judgment was decreed “void from the beginning,” any collection efforts were necessarily deceptive, not authorized by law, and violative of the FDCPA. The Third Circuit rejected the argument, reasoning that “[a]lthough the [s]uperior [c]ourt eventually vacated and declared ab initio the default judgment order after Lowe filed this action, the default judgment was in effect when Defendants allegedly attempted to collect.” (Emphasis added.) And, to the extent the defendants referred the plaintiff to the default judgment in connection with the collection attempts, any such reference was not a false representation “because, at the time of the communication, the default judgment was an order issued by the [s]uperior [c]ourt.” (Emphasis added.) As the plaintiff alleged no misleading representations apart from those based on the void default judgment, the Third Circuit affirmed summary judgment for the defendants. To read more click here.