(CN) - Collection letters that misidentify a debtor's original creditor violate federal debt-collection law, the 9th Circuit ruled.
The debt that led to the class action in question stemmed from David Tourgeman's purchase of a Dell computer while he was living in Mexico.
Tourgeman had financed the computer in question through Dell Financial Services LP and had it shipped to his parent's house in California.
Dell Financial eventually sold Tourgeman's alleged debt and 85,000 other similar cases to Collins Financial Services Inc., whose affiliate, Paragon Way Inc., mailed three collection letters to Tourgeman's parents in California.
When Tourgeman failed to respond, Paragon brought in Nelson & Kennard to file a collection lawsuit against him in San Diego County Superior Court. Though the law firm ended up dismissing the complaint, Tourgeman found out during the proceedings about the three collection letters that had been sent to his parents.
Tourgeman filed his federal class action in San Diego, seeking statutory damages for violations of the federal Fair Debt Collection Practices Act.
While Dell Financial and Tourgeman disagreed as to whether he ever paid off the debt, they settled their issues and Dell escaped being named in the complaint.
Tourgeman claimed that the defendants had misidentified his original creditor in the letters sent to his parents and in the state-court complaint against him. He also argued that Nelson & Kennard lied when it said an attorney reviewed its collection letter.
After certifying a class, U.S. District Judge Cathy Bencivengo ruled for the defendants on cross-motions for summary judgment.
A three-member panel with the federal appeals court reversed 2-1 on Wednesday.
"We are persuaded that, in the context of debt collection, the identity of a consumer's original creditor is a critical piece of information, and therefore its false identification in a dunning letter would be likely to mislead some consumers in a material way," according to the opinion by U.S. District Judge Paul Friedman, sitting on the panel by designation from Washington, D.C.
"Unlike mislabeling portions of a total debt as principal rather than interest - literally false, but meaningful only to the 'hypertechnical' reader - the factual errors in Paragon Way's letters to Tourgeman could easily cause the least sophisticated debtor to suffer a disadvantage in charting a course of action in response to the collection effort."
The panel concluded that the lower court should have ruled for Tourgeman against Paragon Way and Nelson & Kennard, and remanded the case to San Diego for briefing on whether Tourgeman is entitled to judgment against Collins Financial Services for vicarious liability.
In a three-sentence dissent, Judge Jerome Farris wrote simply that, "As I view the record, the trial court got it right."