Hunstein II: 11th Circuit Doubles Down on Dubious Conclusion That Mail Vendor Usage Violates FDCPA

Financial Services Law

In a surprise to many, an arguably rogue panel of the U.S. Court of Appeals for the Eleventh Circuit has now reaffirmed its earlier decision from Hunstein v. Preferred Collection, 994 F.3d 1341, holding that (1) a plaintiff has Article III standing to sue a debt collector for violating federal debt collection law by merely disclosing personal information to the mail vendor employed to send debt collection communications, and (2) on the merits, the plaintiff sufficiently pleaded a claim for unauthorized third-party disclosure because mail vendors are third “persons” who were sent communications concerning a consumer’s debt. Given the prior ruling, then, why are we surprised? We explain below.

What happened

The short answer: TransUnion v. Ramirez happened. But first some background.

In Hunstein, a Florida-based plaintiff, Richard Hunstein, failed to pay a medical debt, and the hospital referred the matter to Preferred, a debt collector, which employed a third-party mail vendor, CompuMail, to mail a collection letter to Hunstein. Among other things, that letter identified Hunstein, his status as a debtor, the amount owed, that it concerned medical treatment for his son, and his son’s name.

In one of the first suits of its kind, Hunstein sued under both the FDCPA and the Florida equivalent, claiming Preferred wrongfully disclosed his personal information, without permission, to CompuMail. The basis for his claim? Hunstein alleged that sending his information to a mail vendor per se violated Section 1692c(b) of the FDCPA, which generally bars debt collectors from communicating consumers’ personal information to third parties “in connection with the collection of any debt.” The district court dismissed but a unanimous three-judge panel of the Eleventh Circuit, on appeal, reversed, in April 2021.

The debt collection industry was understandably outraged. How could the mere use of a pass-through vendor invade anyone’s privacy? What was the likelihood anyone at the vendor even read the content, or further disseminated it? No appellate court had ever concluded that the mere engagement of mail vendors to send dunning letters was a violation of the FDCPA. That is, until Hunstein.

While defendants were busy challenging the ruling, the U.S. Supreme Court issued its decision in TransUnion v. Ramirez, which together with the earlier Spokeo v. Robins case, largely rejected the notion that plaintiffs with mere statutory violation claims had standing to sue defendants.  As we previously noted, under the logic of the ruling, claims such as Hunstein’s would likely fail for lack of federal subject-matter jurisdiction since there were no allegations of actual damages, and instead rely on both a hyper-technical reading of the law and the availability of statutory damages.

But TransUnion went even further. The Supreme Court noted, admittedly in dictum, that (1) courts have not “necessarily recognized disclosures to printing vendors as actionable publications,” (2) in such an instance, the plaintiff would need to present evidence that the defendant had “brought an idea to the perception of another,” and (3) “the document was actually read and not merely processed.” Finally, “plaintiffs’ internal publication theory circumvents a fundamental requirement of an ordinary defamation claim—publication—and does not bear a sufficiently ‘close relationship’ to the traditional defamation tort to qualify for Article III” standing.

Hunstein II

Faced with the intervening TransUnion v. Ramirez decision, the Eleventh Circuit three-judge panel reconsidered its first, unanimous ruling, and many industry lawyers predicted a speedy reversal. But even with Ramirez, the panel not only reaffirmed its earlier holdings but has doubled down despite a vigorous, and new, dissent (starting at page 44) from fellow panel judge Gerald Tjoflat.

Faced with a seemingly contradictory ruling from the Supreme Court, two panel members (Obama appointee Adalberto Jordan and Trump appointee Kevin Newsom) acknowledged the seemingly large hurdle set by the court, but were not dissuaded from their conclusion.

First, on standing, the majority opinion gave lip service to Spokeo and TransUnion, but thereafter found that Hunstein had done more than allege a mere statutory violation. The panel admits, as it did in the earlier ruling, that Hunstein cannot demonstrate any tangible harm or any risk of real harm, two of three ways a plaintiffs can demonstrate injury for standing. But as to the third way, the court again concludes that Hunstein alleged “an intangible-but-nonetheless-concrete injury, including one resulting from a statutory violation.”

Said the majority: “Hunstein has alleged a harm similar in kind to the common-law tort of public disclosure of private facts: Under that tort, one who gives publicity to a matter concerning the private life of another is subject to liability to the other for invasion of his privacy, if the matter publicized is of a kind that (a) would be highly offensive to a reasonable person, and (b) is not of legitimate concern to the public.” Here, since Hunstein claims Preferred disclosed sensitive medical information to “the employees of an unauthorized third-party mail house,” the court must accept [on a motion to dismiss] that the disclosure occurred.

The court continues: “It’s important to remember (again) that the question we face here is not whether Hunstein has stated a claim for public disclosure of private facts but, rather, whether the statutory violation that he has alleged bears a sufficiently close relationship to that common-law tort.” And here the court finds that it does. In Judge Tjoflat’s dissent, he pointedly dissects this conclusion, noting that TransUnion requires a plaintiff to allege facts “that allow us to find a common-law analogue to the alleged statutory violation.” And here, says Tjoflat, those are conspicuously absent.

Judge Tjoflat was not impressed. “The Court’s opinion tries to explain how Hunstein’s alleged statutory violation is ‘public,’ such as to fit into the tort of public disclosure of private facts. It says that ‘some measure of disclosure in fact occurred’ based on Hunstein’s allegations that employees of the mail vendor received Hunstein’s information from Preferred. Apparently, the Court thinks that ‘some measure of disclosure’ is close enough to publicity to find a common-law analogue with the tort of public disclosure of private facts.” But, says Tjoflat, “Hunstein’s allegations fail the first element and necessarily then fail all the other elements. There was no publicity in this case. The only entity to which Preferred transmitted Hunstein’s information was CompuMail. This certainly is not to the public at large. Communication of a fact to ‘a small group of persons’ is not publicity.”

The majority opinion then attempts to harmonize its decision with the recent Supreme Court precedent. Addressing the seeming contradictory holding of TransUnion, the majority acknowledged that the statement on mail vendors, “may seem—at least on its face—to be in some tension with our holding here,” but argued that the comments were pure dictum, and therefore not binding. Likewise, said the majority, the two cases were at different procedural postures because Hunstein had not proceeded beyond the motion-to-dismiss stage.

On the merits, the court reaffirmed its earlier statement that there was no dispute that Preferred is a debt collector, Hunstein is a consumer and that the alleged debt was consumer debt, all within the meaning of § 1692c(b). Likewise, they again relied on Preferred’s concession that the transmittal of Hunstein’s personal information to CompuMail constitutes a “communication” within the meaning of the statute. Accordingly, said the majority, the “sole question before us is whether Preferred’s communication with CompuMail was ‘in connection with the collection of any debt,’ such that it violates § 1692c(b).” (Opinion at 32-33.)

On that last issue, the court rejected Preferred’s attempt to employ a “factor-based analysis” that shows that, it says, its communication with CompuMail was not “in connection with the collection of any debt.” Likewise, the court rejected Judge Tjoflat’s suggestion that CompuMail was a mere “medium” for the communication because of the “commonsense definition of ‘medium’ to denote a ‘channel, method, or system of communication.’” As such, “it follows that mail vendors like CompuMail are indeed ‘persons’ within the meaning of §§ 1692a(2) and 1692c(b).”

The end result? The trial court decision is, again, reversed and remanded. Whether plaintiff can now prove his allegations will be up the district court, and perhaps a jury, to decide.

Why It Matters

Leaving aside whether the decision is poorly reasoned (and obviously we think so), the ruling has far-ranging implications to debt collectors doing business in those states (Florida, Georgia and Alabama) bound to follow the court’s ruling. We fully expect defendants to, again, seek rehearing en banc (that is, by the entire Eleventh Circuit panel of judges), and the blistering dissent suggests that a full panel ruling could occur.

And if the decision stands, the harm will be upon consumers, not the debt collectors. Debt collectors have long employed vendors to reduce costs on ministerial matters. Mail vendors have both the technology and expertise to handle mass mailings more efficiently and at a lower cost. In doubling down, the court is forcing debt collectors to internalize these costs. The result is mass disruption in affected markets because most debt collectors simply don’t have the technology or expertise to do so. And the impact spreads far beyond mail vendors. For example, debt collectors might be unable to facilitate payments through mobile or web-based platforms unless the debt collectors manage these platforms, and most entities lack the in-house expertise to do so. The result? Debtors may need to return to the days of paying by U.S. mail, causing delay and increased cost.

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