On March 30, 2020, the United States Court of Appeals for the Third Circuit issued its highly-anticipated en banc opinion in Riccio v. Sentry Credit. The questions before the Court were (1) “Does 15 U.S.C. § 1692g(a)(3) allow debtors to orally dispute a debt’s validity?” and (2) “Should [the] en banc Court resolve a circuit conflict by overturning a three-decades-old panel decision which has been eroded by intervening Supreme Court authority?” The Third Circuit unanimously answered both questions in the affirmative.
The District Court of New Jersey granted Sentry Credit's Motion to Dismiss Riccio's claim that Sentry Credit violated the FDCPA because its Initial Validation Notice did not state that a dispute must be in writing, as required by the precedent of a Third Circuit panel in Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991). Gordon & Rees trial counsel, Peter Siachos, successfully argued that the statute was clear on its face, and did not require that the Initial Validation Notice include an affirmative statement that an account dispute must be in writing. Plaintiff appealed.
The March 30, 2020 decision concluded that Graziano was no longer good law in the Third Circuit and, in doing so, fell in line with the Second, Fourth and Ninth Circuits. The Court resorted to a textual, and contextual, reading of Section 1692g, as a whole, and reached the conclusion, consistent with its fellow Circuits, that Section 1692g permits both oral and written disputes.
At the panel hearing in September 2019, Gordon & Rees Partner Jacob (Jack) Cohn, co-chair of the firm’s Appellate Practice group, urged the three-judge panel to recommend that the full court initiate sua sponte rehearing with a view towards overruling Graziano, and resolving the circuit split that had developed since it was decided. In October 2019, the full court voted to rehear the appeal en banc – an exceedingly rare step, especially when en banc review is ordered before the original panel had issued an opinion in the first instance. The appeal was reargued in February 2020.
In its en banc ruling, the Third Circuit acknowledged that Graziano’s interpretation rendered Section 1692g(a)(3) meaningless (a trivial “amuse-bouche” for 1692g(a)(4)), thus running afoul of the statutory rule of construction to avoid a reading that renders a portion of the statute as surplusage. Ultimately, the Third Circuit determined that the plain meaning of Section 1692g(a)(3) does not require a debtor to dispute a debt in writing, and that the Graziano panel’s prior ruling in fact was anti-consumer.
Importantly, the Court rejected Riccio’s request to curb the retroactive application of the en banc holding, effectively shutting down the “cottage industry” of plaintiff’s lawyers attacking Initial Validation Notices that, as the Court noted, tracked the statutory language “perfectly,” because they allegedly ran afoul of Graziano. Moreover, in footnote 5, the Third Circuit strongly discouraged any attempt by the plaintiff’s bar to try to sue those debt collectors that tailored their Initial Validation Notices in the Third Circuit to comply with Graziano’s now-overrruled holding.
Finally, during the en banc argument, Cohn argued that the "least sophisticated consumer" standard was a judicially-created anomaly that was unsupported by the text of the FDCPA. While the Court did not reach this issue, in footnote 6, the Court seemingly invited a challenge to this judge-created exception to the traditional “reasonable person” standard in a future case.