Revisiting Top Wisconsin and Federal Court Decisions

Three cases listed in the “Top 8 Recent Wisconsin Federal Court Decisions” and the “Top 10 Recent Wisconsin Supreme Court Decisions” (Wisconsin Lawyer, Dec. 2019) require correction and/or additional information.

Two of the federal cases (Bahena v. Jefferson Capital and Boerner v. LVNV) were referenced for holdings that a creditor violates the Wisconsin Consumer Act (WCA) by filing a legal action without first providing a required notice of right to cure default. That particular holding in these cases was indirectly overruled by the decision in Security Finance v. Kirsch, which, as a decision of the Wisconsin Supreme Court, is required to be followed on matters of state law by federal courts.

However, both Bahena and Boerner had additional holdings that are relevant to Wisconsin debtors. Boerner also held that the federal Fair Debt Collection Practices Act (FDCPA) is violated by debt collectors who file an action when the requisite notice of right to cure default has not been served; this holding presumably remains undisturbed by Kirsch, as the Wisconsin Supreme Court was not asked to rule on the question of federal law.

Further, in both Bahena and Boerner a key issue was whether a debt collector violates the FDCPA by filing legal actions without having an attorney be meaningfully involved in the preparation of that action, and addressed what evidence is sufficient to get to a jury on that question; such a violation can exist even if the debt collector did not commit additional errors or violations in pursuing the action.

Finally, in the state court roundup, it should be noted that although Kirsch’s holding applies to the Wisconsin Consumer Act, it did not overrule federal cases allowing those claims to proceed under the FDCPA (as noted above); the court’s decision was limited solely to whether that conduct violates Wis. Stat. section 427.104, and not other provisions of the WCA, so it remains an open question as to whether a merchant filing a legal action without first providing a notice of right to cure default might violate other provisions of the WCA.

Lawyers who practice in consumer law, bankruptcy law, family law, and other areas of practice where they are required to understand how to handle debts owed by their clients should familiarize themselves not just with Bahena and Boerner but also the WCA and FDCPA; alternatively, they should refer clients to lawyers who are knowledgeable about those issues to ensure that clients do not unnecessarily file bankruptcy or face collections they might otherwise be free from, as well as to ensure that those clients are knowledgeable about their rights as debtors and consumers.

Briane Pagel
Lawton & Cates S.C., Madison

Author Response: Security Finance v. Kirsch, discussed in “Top 10 Recent Wisconsin Supreme Court Decisions” (Wisconsin Lawyer, Dec. 2019), involved a consumer’s claims under the Wisconsin Consumer Act (WCA). In Kirsch, the Wisconsin Court of Appeals held that it is not a violation of the WCA to file suit without sending a notice of cure under Wis. Stat. section 425.105, and noncompliance with the notice requirement merely provides grounds for dismissal of the action. 2018 WI App 35, ¶¶ 12-14, aff’d, 2019 WI 42. The Wisconsin Supreme Court affirmed the court of appeals but did not directly decide that issue because it was not raised in the petition for review. Kirsch, 2019 WI 42, ¶ 11 n.3. On the issues raised, the supreme court held that filing suit without a notice of cure is not a violation of Wis. Stat. section 427.104 (as enforcing a right that did not exist, (1)(j), or as harassing conduct, (1)(g)).

Although the supreme court did not decide whether noncompliance with the notice of cure requirement is a violation of Wis. Stat. section 425.105, the court observed numerous times that it is a “procedural” requirement, noncompliance with which is a “procedural” “defect,” “failure,” “error,” or “miscue.” Kirsch, 2019 WI 42, ¶¶ 14, 19, 20, 30. The court held that the WCA statutes provided Kirsch no relief “other than that of dismissal of an improperly filed complaint.” Id. ¶ 16. Further, procedural errors are “treated much differently” under chapter 425 than other issues and “failure to provide a notice of default and right to cure is not expressly linked to a statutory remedy under the WCA ….” Id. ¶ 19.

Pertinent to that issue, in Kirsch the supreme court applied Beal v. Wyndham Vacation Resorts, 956 F. Supp. 2d 962 (W.D. Wis. 2013), which held that the WCA notice of cure requirement is a “procedural hurdle” to a debt collection action, but it does not give rise to “a private right of action under the [WCA] for a creditor’s failure to comply” with the procedural requirement. Id. at 969. Since Kirsch gave Beal the seal of approval, federal courts should likewise apply Beal to hold that Wis. Stat. section 425.105 is a shield, leading to a procedural dismissal, and not a sword, giving rise to affirmative liability.

Finally, the Federal Debt Collection Practices Act (FDCPA) was not at issue in Kirsch. Nor could it be, as the Kirsch action was filed by the entity that originally extended the loan (a “first-party” creditor). The FDCPA does not apply to first-party creditors. See 15 U.S.C. § 1692a(6). As noted, the federal district court’s Boerner and Bahena decisions are at least indirectly overruled by Kirsch. Kirsch will be applied by federal courts as binding precedent interpreting the WCA. Beyond WCA claims, Kirsch also should be applied when considering FDCPA claims that involve a notice of cure issue. Although the WCA and the FDCPA are different statutory schemes with different language, Kirsch is pertinent to the analysis of FDCPA claims relating to the accuracy of debt collection communications and issues relating to the right to seek payment of a debt. As the supreme court held in Kirsch, a creditor has a right to sue upon a valid debt, and noncompliance with the procedural notice of cure requirement does not “disrupt” such rights under the debt. The debt is still owed, whether or not proper notice of cure is provided.

Lisa M. Lawless
Husch Blackwell LLP, Milwaukee