Defendant not a 'debt collector' under the Fair Debt Collection

Daily Record (Rochester, NY), Jul 2, 2004 by Helen Nguyen

A lawsuit against American Water Services, Inc., a company that manages the billing and collection operations for the Buffalo Water Board and Buffalo Sewer Authority, was dismissed by the U.S. District Court for the Western District of New York based on the court's determination that the company was not a debt collector under the law.

In Stevens, et al. v. American Water Services, U.S. District Judge William M. Skretny concluded that because American Water managed the collection of both non-delinquent and delinquent accounts, the company did not meet the definition of a debt collector under the Fair Debt Collection Practices Act (FDCPA) of 1978.

Plaintiffs' Allegations

In filing the lawsuit against American Water, the plaintiffs, Mary Ann Stevens and Virginia Stewart, who own houses in the city of Buffalo, alleged that the company engaged in illegal debt collection practices when the company billed and obtained commissions from them after they failed to pay their water and sewer service bills on time.

Under a contract that American Water had with the Buffalo Water Board and Buffalo Sewer Authority, the company managed the billing and collection operations for the municipalities. As compensation, American Water received a variable contractual amount equal to 21 percent of funds collected from delinquent accounts.

The plaintiffs asserted that American Water was unjustly enriched through these commissions. They also alleged that in the process of billing and collecting the commissions, the company violated laws under the FDCPA and engaged in misleading business practices, in violation of New York General Business Law Section 349.

FDCPA Claims

In dismissing the plaintiff's FDCPA claims, the court determined American Water met the non-default debt exception, which provides that the definition of a debt collector does not include any person collecting or attempting to collect any debt owed or due or asserted to be owed or due to another to the extent such activity ... concerns a debt which was not in default at the time it was obtained by such person. 15 USC Section 1692a (6)(F)(iii)(emphasis added).

Based on this, the court determined American Water was not a debt collector since the company was responsible for managing the billing and collection of Water Board and Sewer Authority accounts both before and after delinquency.

Defendant is involved in the management of billing and collections both before and after any default or delinquency, wrote Judge Skretny. In that capacity, defendant supervises and manages work performed by employees of the city of Buffalo. While defendant's employees do not perform the actual billing and collection, this does not diminish defendant's responsibility to manage the debt collection at a time when the debts are not in default, i.e. when the customers' accounts are current. Critically, there is no evidence to suggest that defendant becomes involved with customer accounts only after they are in default. In sum, this court finds that defendant is not the type of third-party debt collector that Congress intended to regulate when it enacted the FDCPA.

State Claims

The federal court also dismissed the plaintiff's state claims after determining that the state court was the proper venue for addressing their claim that American Water was being unjustly enriched by the 21 percent surcharge that the Water Board and Sewer Authority charged on delinquent accounts.

Resolution of plaintiffs' claims will require an extensive examination of the New York Public Authorities Law ... to determine whether the Water Board and Sewer Authority exceeded their authority by imposing the surcharge, Judge Skretny wrote. As such, this court finds that principles of federalism and comity dictate that this particular question be left for decision by the courts of New York State.