by Andrew M. Schwartz
Gordon Rees Scully Mansukhani, LLP
On February 19th, something unusual took place in the Third Circuit. A 29-year old precedent stood on the chopping block before an en banc panel. On “trial” was the continuing viability of the holding in Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991), requiring that all consumer disputes be reduced to writing. The argument was whether Section 1692g(a)(3) of the Fair Debt Collection Practices Act should continue to be read to include an “in writing” requirement. As Graziano held, for a dispute to be effective, it must be in writing. Graziano, 950 F.2d at 112.
And so it went, in the 3rd Circuit, that all effective disputes must be reduced to writing. And 29 years went by and collectors adjusted to this 3rd Circuit precedence despite the Court’s reading of language into Section 1692g(a)(3) of the FDCPA. However, in 2018, the plaintiff’s bar advanced a new theory of liability, that a debt collector’s use of the language in Section 1692g(a)(3) in its initial written disclosures violated the FDCPA. The logic pressed by the plaintiffs’ bar was the failure to include “in writing” language in the 1692g(a)(3) disclosure created confusion in the minds of the least sophisticated consumers as to whether the consumer could orally dispute the debt where the 3rd Circuit deemed such disputes ineffective. Generally, debt collectors prevailed on motions to dismiss or motions for judgment on the pleadings, but a minority of the District Courts in the Third Circuit, in reliance on the holding in Graziano, and its progeny, determined that a debt collector’s use of the Congressionally-mandated language set out in Section 1692g(a)(3) in initial disclosures violated the FDCPA. Lawsuits rained down. Motion practice ensued on a grand scale. A vast majority of judges in the United States District Court for the District of New Jersey rendered decisions in favor of debt collectors, whereas judges in the United States District Courts for the Eastern and Middle Districts of Pennsylvania consistently favored the plaintiff’s side of the argument.
Because of the conflict in the District Courts within the 3rd Circuit, a number of appeals were taken to the 3rd Circuit. In the faces of these appeals, the 3rd Circuit consolidated of four appeals: Magana, et al. v. Amcol Systems, Inc., Reizner v. National Recoveries, Inc.; Robinson v. Northland Group, Inc., and Riccio v. Sentry Credit. Inc., with a number of other appeals resolved at mediation in the 3rd Circuit and other appeals stayed pending determination of the consolidate appeal. The District Courts, in turn, stayed motion practice (voluntarily and involuntarily) pending the results of the consolidated appeal. Gordon Rees Scully Mansukhani represented Sentry Credit, Inc., at the District Court and before the 3rd Circuit. Oral argument for the consolidated appeal took place on September 12, 2019 before Judges Hardiman, Greenaway, Jr., and Bibas.
During the oral argument, it became clear that the 3rd Circuit panel was troubled by the Graziano holding. All three judges on the panel directed questions to counsel as to whether Graziano was wrongly decided and whether its logic remained viable in the face of decisions rejecting Graziano in all other Circuits that have opined on the “in writing” requirement (the 9th, 4th and 2nd Circuits).
Rather than issue a decision on the consolidated appeal, the 3rd Circuit ordered, sua sponte, en banc review of Graziano. The 3rd Circuit ordered Appellate Counsel from Gordon Rees to advance the argument on reversing Graziano before the en banc panel at oral argument on February 19, 2020. On February 14th, the 3rd Circuit issued an order requesting supplemental briefing on the retroactive application in the event of a reversal of Graziano. Additionally, the Circuit stayed related appeals pending in the 3rd Circuit.
During the hour-long en banc argument, it became clear that the 3rd Circuit was strongly leaning toward reversal of Graziano. Of particular interest was the 3rd Circuit’s inquiry into the retroactive application of reversal of Graziano. The 3rd Circuit spent time considering the holding in Suesz v. Med-1 Sols., LLC, 757 F.3d 636 (7th Cir. 2014) on the issue of retroactivity and the prospect of a bona fide error exception for debt collectors that added “in writing” language in the 1692g(a)(3) disclosures because of Graziano. In passing, the 3rd Circuit expressed skepticism with the holding in Oliva v. Blatt, Hasenmiller, Leibsker & Moore, 864 F.3d 492 (7th Cir. 2017), cert. denied, 138 S. Ct. 1283, 200 L. Ed. 2d 469 (2018), but that is a battle for another day.