3. CHRISTOPHER M. TERRAN, v. JEROLD KAPLAN

PRIOR HISTORY:  [**1]  Appeals from the United States District Court for the District of Arizona. D.C. No. CV-94-01880-EHC. Earl H. Carroll, District Judge, Presiding.

  DISPOSITION: REVERSED in PART, AFFIRMED in PART, and REMANDED.  

COUNSEL: Michael C. Shaw, Bybee & Shaw, Tempe, Arizona, for the plaintiff-appellant-cross-appellee.  

Stanley M. Hammerman, Hammerman & Hultgren, Phoenix, Arizona, for the defendant-appellee-cross-appellant.  

JUDGES: Before: Arthur L. Alarcon, Robert R. Beezer, and Diarmuid F. O'Scannlain, Circuit Judges. Opinion by Judge Alarcon.  

OPINION BY: ALARCON  

OPINION:  [*1429]  OPINION  

ALARCON, Circuit Judge:

This action arises from a letter sent by Jerold Kaplan, in his capacity as a debt collector, to Christopher Terran to collect on a debt Terran owed to Montgomery Ward Credit Corporation in the amount of $ 546.63 (the "collection letter"). Terran appeals from the district court's denial of a damage award following its determination that the collection letter violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § §  1692a-o. Kaplan cross-appeals from the district court's conclusion that the letter violated the FDCPA. Both parties challenge the district court's order that each party must bear its own attorneys'  [**2]  fees and costs.

We conclude that Kaplan's collection letter did not violate the FDCPA. Because we reverse the district court on this ground, we do not reach Terran's challenge to the district court's denial of damages. We further remand for a recalculation of attorneys' fees and costs due Kaplan and for clarification of whether Terran, his counsel, or both are responsible for the payment of these fees and costs under Rule 11 of the Federal Rules of Civil Procedure. I

On May 16, 1994, Kaplan, a debt collection attorney, mailed an initial letter of indebtedness to Terran (the "collection letter"). The one-page letter, typed on Kaplan's law office letterhead, contained three paragraphs set in  [*1430]  a uniform size and typeface. The letter stated:  

Please be advised that this office represents MONTGOMERY WARD CREDIT CORP with whom you have an outstanding balance of $ 546.63.

Unless an immediate telephone call is made to J SCOTT, a collection assistant of our office at (602) 258-8433, we may find it necessary to recommend to our client that they proceed with legal action.

Unless you notify us in writing within thirty (30) days after receipt of our initial notice that [**3]  you dispute the validity of this debt, or any portion thereof, we will assume the debt to be valid. Upon such notification, we will obtain verification of the debt or a copy of the judgment against you and a copy of such verification or judgment will be mailed to you. Upon your written request within the thirty (30) day period described above we will provide you with the name and address of the original creditor if different from the current creditor.

On September 9, 1994, Terran filed a complaint in the district court against Kaplan alleging violations of 15 U.S.C. § § 1692e(3), (5), (10), n1 & 1692g n2 of the FDCPA; unreasonable debt collection practices under Ariz. Rev. Stat. § §  32-1001; and intentional infliction of emotional distress. Terran demanded actual damages, statutory damages, punitive damages, and attorneys' fees and costs. On March 22, 1995, Terran moved for summary judgment solely on the §  1692g claim. The district court denied the motion on May 12, 1995, concluding that the claim presented a disputed question of fact for the jury. On June 12, 1995, Terran unilaterally moved for a dismissal of all the claims in the complaint with prejudice except the §  1692g claim.  [**4]  This motion was granted. He further indicated that the only relief he sought was statutory damages under 15 U.S.C. § 1692k, n3 in the amount of $ 1,000.  

n1 Section 1692e provides, in relevant part:

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

. . .

(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.

. . .

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

. . .

(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.  

 15 U.S.C. § 1692e.

n2 Section 1692g provides in pertinent part:

(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing -

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.  

 15 U.S.C. § 1692g(a). [**5]

    n3 Section 1692k, entitled "Civil Liability," provides, in part:

(a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of -

(1) any actual damage sustained by such person as a result of such failure;

(2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $ 1,000; . . . and

(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs.

 15 U.S.C. § 1692k(a).  

 [*1431]  Immediately prior to trial, on July 5, 1995, Kaplan filed a trial memorandum in which he claimed that Terran had asserted claims in his complaint in bad faith and for purposes of harassment [**6] under §  1692k(a)(3), and without a good faith inquiry and a reasonable basis as required by Rule 11. n4 Accordingly, Kaplan requested reasonable attorneys' fees and costs.  

n4 Rule 11 provides, in part:

(b) Representations to Court. By presenting to the court . . . a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, -

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may . . . impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.  

Fed. R. Civ. Pro. 11(b) & (c).  

 [**7]

Following a bench trial, the district court issued a Memorandum and Order on November 9, 1995, in which it concluded that Kaplan's collection letter was "at best minimally violative" of the FDCPA. The district court denied Terran statutory damages based on the absence of evidence of "willful or repeated disregard" of the FDCPA, n5 and further ordered that each party bear its own fees and costs.  

n5 Factors to be considered by the court in determining the amount of liability under section 1692k(a), include "the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional." 15 U.S.C. §  1692k(b).  

II

Congress enacted the FDCPA to "'eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid.'" Swanson v. Southern Oregon Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir. 1988) (quoting S. Rep. No. 95-382, at 4 (1977), reprinted  [**8]   in 1977 U.S.C.C.A.N. 1695, 1699). "To ensure that debt collectors give consumers adequate information concerning their legal rights," id. (citation omitted), section 1692g(a) requires that the initial communication with a consumer in connection with a debt contain: (1) the amount of the debt; (2) the name of the creditor; (3) a statement that if the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer disputes the debt, the debt collector will mail the consumer verification of the debt or a copy of a judgment; and (5) a statement that, upon the consumer's written request, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Terran does not dispute that the collection letter contained all of the statements required under section 1692g. Rather, he asserts that the additional language in the letter "overshadowed and/or contradicted the validation notice."

Under the law of this circuit, whether the initial communication violates the FDCPA [**9]  depends on whether it is "likely to deceive or mislead a hypothetical 'least sophisticated debtor.'" Wade v. Regional Credit Ass'n, 87 F.3d 1098, 1100 (9th Cir. 1996) (quoting Swanson, 869 F.2d at 1225). The objective least sophisticated debtor standard  [*1432] is "lower than simply examining whether particular language would deceive or mislead a reasonable debtor." Swanson, 869 F.2d at 1227. To satisfy section 1692g's requirements, "the notice Congress required must be conveyed effectively to the debtor. It must be large enough to be easily read and sufficiently prominent to be noticed . . . [and it] must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency." Id. at 1225 (citation omitted).

A

We have not previously been called upon to decide the appropriate standard to review a district court's determinatio