Res Judicata, Estoppel, Claim, and Issue Preclusion
I often talk about the advantages of pushing a debt defense to the point where the debt collector dismisses the case “with prejudice.” What is this advantage and why is it so important? It has to do with something called “res judicata” or “claim preclusion.” It is important for pro se litigants to understand these and other equitable concepts, including the doctrines of unclean hands and laches.
Estoppel
Very basically, “estoppel” means “prevention.” You can be estopped from doing lots of things for lots of reasons, but the issue tends to come up in mainly two ways: estoppel for some sort of moral reason; or “collateral estoppel” (also known as “issue preclusion”). These are “equitable” issues that exist apart from any actual statutes (laws) that may also apply.
Equity
In ancient English law (which is the basis of American law), people sometimes regarded the concepts of the law as unchangeable. If the law provided that a son would inherit from his father upon his father’s death, for example, then that legal right would attach no matter how the father’s death occurred. As you might imagine, allowing that idea its full sway could lead to some surprising, and very morally wrong, results. As a result, the doctrine of “Equity” was born. And equity simply means that the court, as an extension of moral order, could not allow itself to be an instument of evil purposes and that it also had a right to protect its efficiency or the power of its rulings.
Unclean Hands, Laches, and other morality-based reasons for Estoppel
“Unclean hands” means you’re asking the court to do something to lock in an advantage you obtained immorally. So, for example, you may have heard that if you kill someone you are not allowed to inherit from them. An example from debt law would be that, if you prevent someone from paying, you might be estopped from suing them for non-payment. It comes up a lot in mortgage foreclosure. For more, look at: Using the Defense of Unclean Hands in Debt Litigation.
“Laches” is also a morality-based defense, but in this case it involves delay. What laches requires is an “unreasonable” delay during which some event harmful to the defendant’s ability to defend himself or herself occurs. The defense is even more powerful if the harmful event is somehow known or expected by the plaintiff. If the delay is unreasonable and your bank burns down, destroying proof of payment of a debt, for example, this might create a defense of laches. A debt collector purchasing a debt and then waiting till the original creditor destroyed its records of the account would be even more powerful.
Notice that laches is different than statute of limitations. Statutes of limitations are legally determined time limits (and are themselves subject to equity-based attack). Statutes of limitations do not depend upon “unreasonable” delay, damage to the defense, or other equitable considerations. They are designed (by laws passed by legislatures) to allow time to bring finality, eventually, so that people can make plans – eventually – without being haunted by their alleged wrongs forever.
Equitable defenses are “affirmative” defenses – you must plead and prove them. In most states that means that you must plead the facts constituting the entire defense in your Answer as an affirmative defense. And they can be attacked by motion to dismiss.
Doctrines of finality
Collateral estoppel (now generally called “issue preclusion”) and res judicata (“claim preclusions”) are court-administered doctrines of “finality.”Basically the rule is that, where a court had a right to decide an issue (it was of “competent” jurisdiction), the parties (or people whose right depends on the rights of the parties – this is called “being in privity”) are precluded (prevented) from relitigating it.
Issue preclusion and claim preclusion are slightly different from each other. Issue preclusion depends on the court having considered a specific legal issue and actually deciding it one way or the other. It doesn’t have to have done so explicitly, however – if the ruling was necessarily decided as part of another issue or ruling – that is, if the only way a court could have ruled about some other issue was to have believed a certain, disputed, set of facts, then the issue will probably be precluded, and the two parties must accept that ruling and that determination of the facts (although they could appeal it, of course). If, for example, you attack a debt collection proceeding based on the debt collector’s suing you before verifying the debt, you may be able to get the case dismissed on that basis. The question of whether the debt collector is a debt collector would then be precluded if you later sued it for violation of the Fair Debt Collection Practices Act (FDCPA). This keeps the parties from fighting about the same legal issues over and over.
The purpose of claim preclusion is to require the parties to bring all the claims they are supposed to in one lawsuit. This allows the court to consider all the facts and all the rights, and come up with one, final resolution to the entire conflict. A classic example of that would be conflicting claims coming out of an automobile accident. If two people are sued in the same car crash, and one brings suit (in a court with “competent” jurisdiction to hear the case), then the other must defend and bring a counterclaim for her injuries that happened in the same crash. There are fine points of this rule, and different terms for some of them, but in general claim preclusion will prevent further litigation of any claim that was, or should have been, made in the first suit.
In debt law, the question is whether you must bring a counterclaim under the FDCPA or risk losing it to claim preclusion. In general, the answer to that is no – you can bring it in a separate action. But if you bring one claim under the FDCPA, you probably have to bring all of them – you cannot safely try to divide your claims against the other side.
Note that the affirmative defense example above, where you sought verification and they brought suit without verifying, straddles this line. Could you get the case dismissed without creating claim preclusion issues for your later suit under the FDCPA? Probably. But if you sought damages or other remedies under the FDCPA as part of this defense, you might be crossing the line. They write law school tests about questions like that, and it is one reason I always preferred to bring all counterclaims and defenses in the defense when I was practicing.
Conclusion
Courts have a number of social policies that control what they do, but there are two main policies you must consider: justice and finality. I have spoken elsewhere of the policy of deciding cases “on the merits” (based on real justice) rather than “technicalities,” and this, for example, is why motions to vacate defaults often work. But on the other hand is “finality” – the desire of courts to save their own resources and to have an end to litigating over past events and certainty going into the future. It is important to be aware of how the courts balance these two, opposing, goals.
Kicking Debt Collectors out of Court – Jurisdictional Issues
We discussed two kinds of jurisdictional issues in a recent teleconference – two different issues that call for very different responses.
In this video we’ll discuss what happens when the debt collector doesn’t show its ownership of the debt and when you are not properly served with the lawsuit.
– Jurisdictional Issues in Debt Law
Ownership of the Debt
When debt buyers bring a lawsuit, their ownership of the debt is always in question. It won’t be their name on the debt instrument or contract, and they will have purchased the debt – gotten it on “assignment.”
There is nothing wrong with that, let me emphasize. Most debts are freely transferrable (unless either a contract or law says they can’t be transferred) – so in most cases this will not be an issue. But what is an issue is proof of ownership. Only the true owner of a debt is permitted to bring a lawsuit. In a way that’s a no-brainer, isn’t it? If I happen to hear that someone owes you money, I can’t sue them for it can I?
No – if I want to sue, I must prove that I am the “true party in interest.”
Without the true party in interest’s participation, the court does not really have jurisdiction over the subject matter of the case. If I bring suit on a debt someone else owes you, and that person gets around to pointing out that I don’t own the debt, the case should be dismissed immediately – without prejudice. If the person being sued does show that the plaintiff cannot prove ownership, the proper response by the court is to dismiss immediately without taking any other action – it can’t make a judgment about the validity of the debt without the real owner being present.
You can attack ownership of the debt at any time, and in a debt case you should always contest the issue not only because you might win, but also because debt collectors actually try to collect debts that don’t belong to them fairly often. You should always make them prove it.
In the case of the big junk debt buyers, they often will have a so-called “bill of sale” between the original creditor and the junk debt buyer. It will say that the creditor is selling and assigning umpteen million dollars worth of debts to the debt collector. It will mention an attachment with the numbers of the accounts sold.
And it will often not have that attachment or anything else linking your account to that sale. That is inadequate proof of ownership. It is no proof of ownership. If you attack the case on that basis it should be dismissed – unless the debt collector can supply the information. For some reason,they often cannot.
You can make this argument at any time.It isn’t waived by you participating in the case. Any time you can prove the debt ownership isn’t established, the case should go away.
Sewer Service
Sewer service is different. In this situation, the process server threw the summons into the ditch while the defendant was watching and then swore to having given the summons to the defendant. In that situation, the defendant is forced into a choice: attack the court’s jurisdiction immediately by motion to quash, wait and attack jurisdiction, or defend. If you take actions to defend on the merits of the case – you say you don’t owe the money – you will likely be “waiving” or letting go your attack on the court’s jurisdiction.
If there is anything suspicious to you about the way you were served, or if the language of the petition filed against you is not clear or understandable, you need to look at your rules of civil procedure – under the “pleadings” section – before you file an answer. Otherwise you risk waiving your attack and “consenting” to whatever was wrong. Sometimes you can lose your best defenses if you do this.
What if they Accuse you of a Frivolous Defense to the Debt
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Arguing Motions in Court
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How Ability to Pay Affects Debt Defense
Res Judicata Estoppel and Claim Preclusion
Res Judicata, Estoppel, Claim, and Issue Preclusion
I often talk about the advantages of pushing a debt defense to the point where the debt collector dismisses the case “with prejudice.” What is this advantage and why is it so important? It has to do with something called “res judicata” or “claim preclusion.” It is important for pro se litigants to understand these and other equitable concepts, including the doctrines of unclean hands and laches.
Estoppel
Very basically, “estoppel” means “prevention.” You can be estopped from doing lots of things for lots of reasons, but the issue tends to come up in mainly two ways: estoppel for some sort of moral reason; or “collateral estoppel” (also known as “issue preclusion”). These are “equitable” issues that exist apart from any actual statutes (laws) that may also apply.
Equity
In ancient English law (which is the basis of American law), people sometimes regarded the concepts of the law as unchangeable. If the law provided that a son would inherit from his father upon his father’s death, for example, then that legal right would attach no matter how the father’s death occurred. As you might imagine, allowing that idea its full sway could lead to some surprising, and very morally wrong, results. As a result, the doctrine of “Equity” was born. And equity simply means that the court, as an extension of moral order, could not allow itself to be an instument of evil purposes and that it also had a right to protect its efficiency or the power of its rulings.
Unclean Hands, Laches, and other morality-based reasons for Estoppel
“Unclean hands” means you’re asking the court to do something to lock in an advantage you obtained immorally. So, for example, you may have heard that if you kill someone you are not allowed to inherit from them. An example from debt law would be that, if you prevent someone from paying, you might be estopped from suing them for non-payment. It comes up a lot in mortgage foreclosure. For more, look at: Using the Defense of Unclean Hands in Debt Litigation.
“Laches” is also a morality-based defense, but in this case it involves delay. What laches requires is an “unreasonable” delay during which some event harmful to the defendant’s ability to defend himself or herself occurs. The defense is even more powerful if the harmful event is somehow known or expected by the plaintiff. If the delay is unreasonable and your bank burns down, destroying proof of payment of a debt, for example, this might create a defense of laches. A debt collector purchasing a debt and then waiting till the original creditor destroyed its records of the account would be even more powerful.
Notice that laches is different than statute of limitations. Statutes of limitations are legally determined time limits (and are themselves subject to equity-based attack). Statutes of limitations do not depend upon “unreasonable” delay, damage to the defense, or other equitable considerations. They are designed (by laws passed by legislatures) to allow time to bring finality, eventually, so that people can make plans – eventually – without being haunted by their alleged wrongs forever.
Equitable defenses are “affirmative” defenses – you must plead and prove them. In most states that means that you must plead the facts constituting the entire defense in your Answer as an affirmative defense. And they can be attacked by motion to dismiss.
Doctrines of finality
Collateral estoppel (now generally called “issue preclusion”) and res judicata (“claim preclusions”) are court-administered doctrines of “finality.”Basically the rule is that, where a court had a right to decide an issue (it was of “competent” jurisdiction), the parties (or people whose right depends on the rights of the parties – this is called “being in privity”) are precluded (prevented) from relitigating it.
Issue preclusion and claim preclusion are slightly different from each other. Issue preclusion depends on the court having considered a specific legal issue and actually deciding it one way or the other. It doesn’t have to have done so explicitly, however – if the ruling was necessarily decided as part of another issue or ruling – that is, if the only way a court could have ruled about some other issue was to have believed a certain, disputed, set of facts, then the issue will probably be precluded, and the two parties must accept that ruling and that determination of the facts (although they could appeal it, of course). If, for example, you attack a debt collection proceeding based on the debt collector’s suing you before verifying the debt, you may be able to get the case dismissed on that basis. The question of whether the debt collector is a debt collector would then be precluded if you later sued it for violation of the Fair Debt Collection Practices Act (FDCPA). This keeps the parties from fighting about the same legal issues over and over.
The purpose of claim preclusion is to require the parties to bring all the claims they are supposed to in one lawsuit. This allows the court to consider all the facts and all the rights, and come up with one, final resolution to the entire conflict. A classic example of that would be conflicting claims coming out of an automobile accident. If two people are sued in the same car crash, and one brings suit (in a court with “competent” jurisdiction to hear the case), then the other must defend and bring a counterclaim for her injuries that happened in the same crash. There are fine points of this rule, and different terms for some of them, but in general claim preclusion will prevent further litigation of any claim that was, or should have been, made in the first suit.
In debt law, the question is whether you must bring a counterclaim under the FDCPA or risk losing it to claim preclusion. In general, the answer to that is no – you can bring it in a separate action. But if you bring one claim under the FDCPA, you probably have to bring all of them – you cannot safely try to divide your claims against the other side.
Note that the affirmative defense example above, where you sought verification and they brought suit without verifying, straddles this line. Could you get the case dismissed without creating claim preclusion issues for your later suit under the FDCPA? Probably. But if you sought damages or other remedies under the FDCPA as part of this defense, you might be crossing the line. They write law school tests about questions like that, and it is one reason I always preferred to bring all counterclaims and defenses in the defense when I was practicing.
Conclusion
Courts have a number of social policies that control what they do, but there are two main policies you must consider: justice and finality. I have spoken elsewhere of the policy of deciding cases “on the merits” (based on real justice) rather than “technicalities,” and this, for example, is why motions to vacate defaults often work. But on the other hand is “finality” – the desire of courts to save their own resources and to have an end to litigating over past events and certainty going into the future. It is important to be aware of how the courts balance these two, opposing, goals.
Reviving Expired Debt through Trickery
Reviving Expired Debt through Trickery
The banks are always trying to revive debt, through fair means or foul. Here’s a trick you need to be alert for: issuing you a new card with an old balance on it.
The Scam
Here’s how the scam works. I’m sure you know all about statutes of limitations and the way they eventually operate to make old debts uncollectable through lawsuits. But this legal inability does not stretch to a practical prohibition. In other words, just because the debt collectors (or banks, in this case) can’t sue you, they can keep trying to get you to pay the debt back “voluntarily.” And they know that people who have had trouble paying off their debts in the past also have trouble getting credit now – after all, they do their best to make that so.
So here’s what they do: they send credit card offers to the people they can no longer sue, offering them credit cards with reasonable rates and no annual fees – but the only problem is that the cards carry the balance of the old debt. Accepting and applying for the card simply requires accepting responsibility for the debt. http://finance.yahoo.com/news/bringing-expired-debt-back-to-life.html.
What they Don’t Tell You
What the banks don’t tell you is that once you accept renewed responsibility for the debt, you have created an entirely new obligation to the old debt with an entirely new statute of limitations. If anything happens to prevent you from paying the whole amount – at any time – they’ll be free to sue you for the whole amount – at any time within the next several years.
Is it Really a Scam?
There are certainly deceptive features of the program – and a lot of opportunism. People are not generally told or reminded that the debt that is being revived is out of the statute of limitations and couldn’t be collected by lawsuit. And in my opinion, that essential deception suggests that the bankers regard their actions as a scam. Why hide the information if they’re offering such a good deal? Still, it does offer people with troubled debt history access to some credit, and it may be the only opportunity they have. Whether the bank will continue to extend credit after the credit balance is restored to zero (paid off) is a question I have, although it would seem to be in their interest to do so.
Warning
If you get one of these offers, think very carefully before you accept. Doing so will revive a potentially crippling debt that you had escaped and will probably not have any impact on your actual credit score, but it might bring you access to credit that would be otherwise unavailable. Before accepting such an offer, you should certainly make sure you do not, in fact, have other access to credit. Would your credit union, for example, lend you money if you kept a balance with them? How large would the payments on the new card be? How many such payments would it take to equal the amount of credit the card would extend? (i.e., suppose they offer you a card carrying a balance of $5,000, giving you minimum payments of $250 per month, and offering you a credit limit of $300 over that. After a little over a month, if you just saved the money, you would have more money than you would be able to borrow on the card.)
Conclusion
There might be better ways to restore your prosperity than paying a lot of money to someone you don’t owe anything.
Novation Reaging and Reviving Old Debts
Novation, Re-aging and Reviving Debt
This article is a companion article to Reviving Expired Debt through Trickery. Together they discuss a major hazard to pro se litigants and other persons dealing with debt collectors and banks without legal representation, namely the revival of debts that have (or would) expire due to statutes of limitations.
If you are troubled by debts – and specially if you are being troubled by debt collectors, you no doubt are aware that law and the passage of time eventually will put an end to most of those troubles. The debts themselves have statutes of limitations regarding collection, and there are other legal mechanisms that limit the time liability exists. Bankruptcy can also instantly expire a debt, of course, under certain circumstances. In addition, the FDCPA and Credit Reporting Act limits the length of time, and the circumstances under which, bad news can be reported to the public. If you sit tight long enough, then, and do not do anything regarding specific unpaid debts – while at the same time taking certain other, beneficial actions, you will eventually restore your credit rating.
Debt collectors hate all that. They do a lot to try to patch things together to keep it from happening.The result is a Frankenstein for the consumer.
Small Payments
Have you ever wondered why debt collectors are often willing to accept small, token payments from you in response to a collection call? There are at least three good reasons for this willingness. First, they know that if you accept responsibility for the debt and make a payment, however small, you will be much more likely to pay more at a later time. In his book, Influence, Robert Cialdini calls this the pressure of “consistency,” and its power to affect you should not be underestimated. Second, they know that if you accept responsibility for the debt and pay it, you are making a legal admission, of a sort, that the debt is yours. They will argue – likely with considerable effect – that you would not have made this payment if the debt was not yours, and some courts have admitted this as evidence of a debt’s legitimacy. And third, sometimes the payments can be used to extend the statute of limitations of the debt.
The FCRA prohibits deliquent accounts that are charged off or place for collection from being reported to the credit bureaus beyond 7 years plus 180 days from the date of first delinquency. Of course, if this delinquency is erased, it will start the clock running again. Under certain circumstances, your agreement to make a payment to a bill collector can restart the clock again in probably every jurisdiction. That is, if you and the bill collector agree that your payment will be accepted in lieu of any other penaties or payments for a certain time, this arrangement probably amounts to a “novation.”
Novations
Novations are agreements that supercede and replace previous agreements. They can refer to an agreement that transfers a debt to someone else and eliminates the original party’s liability (as in certain subleasing arrangements, for example), or they can refer to an agreement that substitutes on form (or amount) of debt for another one (as in court settlements, for example). If you agree with the debt collector that your payment will somehow wipe out or satisfy other debts, you may have worked a novation by the terms of any state’s laws. Notice that there should at least be some conscious give and take between debt collector and consumer under this approach – the agreed payments have to wipe out the delinquency.
Other forms of novation are a little more questionable or state-specific. Debt collectors will always argue that any payment made changed the nature of a delinquency and resulted in a period of “working things out.” They argue from this that – at least for some period of time — the statute of limitations is or should be “tolled” (put on hold) while the parties see whether they will be able to work things out. The law generally favors parties being able to settle their differences, and so this interpretation of the law, which takes some of the time pressure off the debt collector and allows it to be more flexible in negotiating, can be persuasive. Statutes of limitations are frequently tolled under various “equitable” conditions (meaning the courts have some ability to create and enforce these conditions). See, Estoppel, Claim and Issue Preclusion, for a more detailed discussion of this power and its uses.
And there is another, very questionable type of novation that has been accepted by many courts – the “account stated” theory of liability. In this theory, persons with an account to a creditor where they regularly receive statements are considered to be agreeing to the statements and accepting them as accurate unless they actively disagree with them. Failure to pay this amount then breaches a “new” agreement and has a statute of limitations independent of the charges that may have gone into that amount. In California, among other places, this can extend the statute of limitations considerably as well as reducing the burden of proof. (As an aside, I have developed a product that helps people being sued under this theory of account stated, which I consider an unjust and unwarranted misreading of the law). It is, in other words, a form of novation.
Re-Aging Debt
In addition to re-aging debt through novation or various equitable principles as discussed above, there is also a more devious, and blatantly illegal, method of changing the debt to extend the time for collection. That is simply to rewrite the date of first delinquency of the debt using a later date. This allows collection efforts to continue longer than legally allowed, and it also allows reporting to the credit bureaus to continue beyond the allowed seven years. This practice is apparently wide-spread, and it may be more effective than one would expect because consumers are sometimes not aware of statutes of limitations and reporting cut-off dates, and they are frequently not aware of their “first delinquency” dates.
Reviving Debt
After a debt has been discharged in bankruptcy or expired by a statute of limitations, it cannot be collected through the legal process. At least some courts have held, however, that a “moral” duty to pay remains and allows debt collectors to continue to pursue the debt (through extra-legal methods) presumably till doomsday. As anyone who has read my materials should know, I do not believe there is any “moral” duty to pay a debt collector – the duty is purely legal, and when this duty expires, so should the right of the debt collectors to pursue it. But at least some courts don’t see it that way, and this supposed “moral” duty is allowed to empower the debt collectors to make new agreements that revive old debts. Any attempt to make new deals that extend the life of a debt should be looked at with a dim view.
Settling with the Debt Collector
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Giving Debt Collectors Money
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What is Case Worth to a Debt Collector
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