Micks v. Gurstel Law Firm, P.C.

Background

Wanda Micks co-signed a $20,000 private student loan for a friend in 2006 and filed for Chapter 7 bankruptcy in 2007. She listed the loan in her bankruptcy petition and received a discharge on November 14, 2007. The opinion describes conflicting evidence about whether the loan was actually discharged: Micks understood that it was, while her bankruptcy attorney testified that he had advised her that student loans generally required a separate court proceeding and a showing of severe financial hardship to be discharged.

After the friend stopped making payments, the National Collegiate Student Loan Trust 2006-2 sued Micks and the friend in Minnesota state court. Gurstel represented the trust. Neither defendant appeared at trial, and the state court entered a judgment against both. Gurstel then pursued wage garnishment against Micks.

In June 2017, Micks applied to the state court to discharge the judgment. Gurstel received the application but failed to object on time because it was mishandled. The state court then entered a certification discharging the judgment on July 21, 2017. Gurstel did not receive direct notice of that order, but Micks’s employer called Gurstel twice and reported that Micks had provided court documents showing a bankruptcy discharge, court release, and that she should not be garnished. Gurstel continued the garnishment and issued a wage levy. After Micks filed this federal lawsuit, Gurstel released the garnishment. In later state-court proceedings, the state court vacated the discharge order but declined to reinstate the judgment, stating that the record did not establish whether the debt had actually been discharged. That state-court matter remained pending.

Micks asserted claims under the Fair Debt Collection Practices Act (FDCPA), a federal law regulating debt-collection conduct, and for the state-law tort of conversion. The parties filed cross-motions for summary judgment. Micks sought judgment only on liability for the FDCPA claim, not on damages or on conversion. Gurstel sought judgment on all claims and also moved for sanctions based on its allegation that Micks abused the related state-court proceedings.

FDCPA coverage

The FDCPA applies to obligations arising from transactions primarily involving personal, family, or household purposes. Gurstel argued that the loan was not a covered debt as to Micks because she co-signed for a friend and received no loan proceeds. The court rejected that argument.

The court found no dispute that the friend used the loan proceeds exclusively for education and held that education-related borrowing is for personal or household purposes. The court also reasoned that Micks’s own purpose in co-signing—to help a former friend obtain an education and pursue career goals—was personal, not commercial. The loan therefore met the FDCPA’s definition of a debt.

Alleged fraud in the state-court proceeding

Gurstel argued that Micks had fraudulently obtained the state-court discharge of the judgment and therefore should not be allowed to recover under the FDCPA. The court rejected that argument for two reasons.

First, the court held that the FDCPA contains no fraud exception. Even assuming Micks had committed fraud under Minnesota law, that alleged fraud did not eliminate her right to seek a remedy for conduct that violated the FDCPA. The court noted that Gurstel could pursue remedies for the alleged fraud under Minnesota law and had pursued state-court relief.

Second, the court held that the evidence would not support summary judgment for Gurstel even if a fraud exception existed. A reasonable jury could find that Micks genuinely believed, or at least believed it was possible, that the loan had been discharged. The evidence showed that she was confused about the effect of her bankruptcy and had served Gurstel with her application, which was inconsistent with an attempt to conceal the proceeding.

FDCPA violations and the innocent-error defense

The court stated that Gurstel did not dispute that it had garnished Micks’s wages under a judgment that had been discharged and had made statements about that judgment that were untrue. The court concluded that these actions violated the FDCPA provisions Micks identified, including provisions addressing false statements about a debt’s legal status, threats of unlawful action, deceptive collection methods, and unfair or unconscionable collection methods.

Gurstel invoked the FDCPA’s “bona fide error” defense. That defense can protect a debt collector only if the violation was unintentional, resulted from a genuine and objectively reasonable error, and occurred despite procedures reasonably designed to prevent that particular error.

Gurstel identified two possible errors. The first was its failure to properly handle Micks’s state-court application. The court acknowledged that a reasonable jury could find that this was a genuine error made despite internal procedures. But the court held that the FDCPA violations did not result from that error under the required cause-and-effect standard. The mishandling merely created circumstances in which later events occurred; the later failure to investigate the employer’s calls was more directly connected to the violations.

The second possible error involved Gurstel’s response to the employer’s telephone calls. To the extent Gurstel misunderstood the legal effect of the state-court order, the court held that a mistake of law is not protected by the bona fide error defense. To the extent Gurstel simply failed to realize that the judgment had been discharged, the court held that the mistake was not objectively reasonable. Gurstel did not ask for copies of the documents, did not identify evidence that it investigated the state-court docket, and did not escalate the calls to an attorney or manager despite its own policy and the information reported by the employer.

Conversion claim and sanctions

The court denied Gurstel’s motion for summary judgment on Micks’s conversion claim. The court explained that either the conversion claim overlapped sufficiently with the FDCPA claim that Gurstel’s defeat on the FDCPA claim required denial of summary judgment, or the claims required different facts and Gurstel had not shown that no genuine factual dispute existed. The court did not decide Micks’s motion on conversion because she had not sought summary judgment on that claim.

The court also denied Gurstel’s sanctions motion. The motion was based on the same alleged fraud-on-the-court theory that the court rejected in addressing Gurstel’s summary-judgment motion.

Disposition

Judge Eric C. Tostrud ordered that Gurstel’s motion for summary judgment was denied; Micks’s motion for summary judgment was granted as to her FDCPA claim only and only as to liability; and Gurstel’s motion for sanctions was denied. The order did not decide damages on the FDCPA claim.