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Echlin v. PeaceHealth

United States Court of Appeals, Ninth Circuit

April 17, 2018

Michelle Echlin, on behalf of herself and all others similarly situated, Plaintiff-Appellant,
PeaceHealth, DBA PeaceHealth Southwest Medical Center; Computer Credit, Inc., Defendants-Appellees.

          Argued and Submitted December 5, 2017 Seattle, Washington

          Appeal from the United States District Court for the Western District of Washington Barbara Jacobs Rothstein, Senior District Judge, Presiding D.C. No. 3:14-cv-05211-BJR

          Brendan W. Donckers (argued) and Daniel F. Johnson, Breskin Johnson & Townsend PLLC, Seattle, Washington; Thomas J. Lyons Jr., Consumer Justice Center PA, Vadnais Heights, Minnesota; for Plaintiff-Appellant.

          Bradley L. Fisher (argued), Davis Wright Tremaine LLP, Seattle, Washington, for Defendant-Appellee PeaceHealth.

          Cassandra L. Crawford (argued) and Mark A. Stafford, Nelson Mullins Riley & Scarborough LLP, Winston-Salem, North Carolina; Jeffrey I. Hasson, Davenport & Hasson LLP, Portland, Oregon; for Defendant-Appellee Computer Credit, Inc.

          Before: Diarmuid F. O'Scannlain, Richard C. Tallman, and Paul J. Watford, Circuit Judges.

         SUMMARY [*]

         Fair Debt Collection Practices Act

         The panel affirmed the district court's grant of summary judgment in favor of the defendants in an action under the Fair Debt Collection Practices Act.

         The panel held that the plaintiff did not establish flat-rating, a practice in which a third party sends a delinquency letter to a debtor, portraying itself as a debt collector, when in fact it has no real involvement in the creditor's debt collection effort, in violation of 15 U.S.C. § 1682j. The panel concluded that the record supported the district court's finding that defendant Computer Credit, Inc., meaningfully participated in defendant PeaceHealth's debt-collection efforts, and thus did not engage in flat-rating, when its services included screening referred debtors for barriers to collection, independently composing and mailing collection letters, inviting and responding to customer questions on a variety of details about the collection process, and maintaining a website that allowed customers to access individualized information about their debts and to submit electronic files to the company.

         The panel held that the district court properly struck a claim of threatening action that cannot legally be taken or that is not intended to be taken under § 1692e(5) because the complaint did not allege such a claim, and any amendment to add the claim would be time-barred. The panel concluded that any claim under § 1692e(10) was waived.



         We must decide whether, under the Fair Debt Collection Practices Act, a company that sent letters demanding that hospital patients pay their overdue medical bills meaningfully participated in the hospital's efforts to collect debts.


         Michelle Echlin is a former patient of PeaceHealth Southwest Medical Center (PeaceHealth) in Vancouver, Washington. Echlin received treatment at PeaceHealth on two different occasions but never paid the nearly $1, 000 in medical bills she incurred as a result. After Echlin ignored multiple requests for payment, PeaceHealth referred her delinquent accounts to Computer Credit, Inc. (CCI), a purported collection agency, for further action.


         For a number of years, CCI and PeaceHealth operated together under a "Subscriber Agreement" signed in 2004. Under the agreement, PeaceHealth would refer delinquent patient accounts to CCI and, for a fixed fee, CCI would perform various services related to the debt-collection process-primarily mailing letters demanding that the patients pay their bills. During the time that an account had been referred to CCI, PeaceHealth would suspend its in-house collection efforts.[1]

         When it referred an account to CCI, PeaceHealth would give CCI the debtor's name and address, the name of any guarantor, the date of the service in question, and the amount owed on the account. CCI would then independently screen each account for potential collection problems (such as staleness of the claim). CCI's screening process was mostly automated, though a CCI employee would personally review at least some of the accounts for red flags. If an account passed CCI's screening process, CCI would then send the debtor a letter advising her that the account had been assigned to CCI for collection purposes and demanding payment.

         CCI controlled the largely formulaic letter-mailing process. Although PeaceHealth was generally aware of the standard format of CCI's letters, CCI alone controlled the content of the letters it actually sent, and CCI did not seek PeaceHealth's approval prior to mailing. The letters were written on CCI letterhead, they were mailed from CCI's in-house mailing center, and they listed CCI's address and phone number (along with PeaceHealth's contact information under a section labeled "Creditor Detail"). The letters also directed debtors to visit a website maintained by CCI, where one could see more details about his or her debt, find information about how to repay or to dispute the debt, and submit electronic documents to CCI. Like the letters, the website encouraged debtors to contact CCI by phone, fax, or mail with questions.

         CCI would mail up to two collection letters for each PeaceHealth account. The first letter informed the debtor that her account had been referred to CCI, "a debt collector, " for collection and requested payment either by check, by a credit card form included in the letter, or online at PeaceHealth's website. CCI itself had no ability to process or to negotiate payments for PeaceHealth, but it would forward to PeaceHealth any payments it received, including endorsing checks made out to CCI, as necessary. CCI typically allowed the debtor two weeks to respond to its first letter. If a debtor made full repayment, CCI stopped all collection activity. But if the debtor failed to pay or to respond within two weeks, CCI would send a second letter, renewing its request that the debtor settle the account. If, after another two to three weeks, the debtor still had not paid her debt, CCI would refer the debt back to PeaceHealth and CCI's activity on the account would end.

         Accounts sent back to PeaceHealth would often then be referred to another company for additional action. As PeaceHealth describes it, CCI's activities were the first step in a series of collections processes "up to and including the point of an additional agency obtaining and executing on a court judgment." CCI did not participate in any of the later collection steps.

         CCI also handled correspondence-both in writing and over the phone-from PeaceHealth debtors. In 2013, for instance, CCI received 440 pieces of mail from PeaceHealth debtors. When it received such mail, CCI would "review, act on it, copy it, " and then forward it to PeaceHealth, though CCI would not necessarily respond directly to the debtor herself. For example, when it received written requests for debt verification, CCI would contact PeaceHealth to verify the validity of the debt and then either PeaceHealth or CCI would send a letter responding to the debtor. CCI also trained its staff personally to handle phone inquiries from debtors, and CCI's Collections Manager estimated that CCI handled approximately 500 calls a week from debtors for all of its clients combined.[2] CCI personnel gave a variety of information to callers, including clarifying basic details about their debts, assisting in understanding their insurance benefits, advising them to look into charity programs for assistance in paying, and explaining the distinction between a payment plan and a partial payment. CCI did not generally reach out to debtors beyond the two letters, but CCI personnel would return calls to debtors if requested, and CCI sent debtors various administrative notices, such as payment or account-closure confirmations.


         In early April 2013, PeaceHealth sent Echlin's information to CCI for assistance in collecting the debt from her first treatment at PeaceHealth. On April 4, CCI assigned Echlin's debt a CCI account number and screened it for barriers to collection. The next day, CCI sent an initial collection letter to Echlin demanding payment. The letter was written in the form described above and stated:

Your overdue balance with PeaceHealth . . . has been referred to [CCI] for collection. . . . This letter will serve to inform you that your account remains unpaid and we expect resolution of your obligation to [PeaceHealth].

         The letter directed Echlin to remit payment in order to "prevent further collection activity by" CCI. It also instructed her to notify CCI within 30 days if she disputed the validity of the debt.

         Having received no response, CCI sent a second letter to Echlin exactly two weeks later. The second letter was substantially the same as the first but included the additional notice:

This is our FINAL NOTICE and you must take action to resolve this overdue account. Pay the amount due to discharge your debt owed to [PeaceHealth]. . . . [T]his is our LAST ...

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