On October 15, the Colorado Supreme Court affirmed that state’s Court of Appeals’ decision upholding a trial court’s granting dismissal of a plaintiff’s Colorado Fair Debt Collection Practices Act (“CFDCPA”) action. The central issue in the case was whether a default judgment obtained against a tortfeasor by a law firm on behalf of its client constitutes debt collection within the statutory framework of the CFDCPA. The decision falls in line with other courts across the country that have rejected similar FDCPA claims.
Consumer plaintiff Francis Ybarra had filed suit against the law firm of Greenberg & Sada, P.C., alleging that the firm had violated the CFDCPA by, among other things, making false and deceptive representations in an effort to collect upon a debt. The complaint filed by Ybarra stemmed from a prior action where Greenberg & Sada obtained default judgment against Ybarra on behalf of its client, State Farm Auto Insurance Company, as subrogee of an insured to whom State Farm had paid a claim for damages caused by Ybarra in a motor vehicle accident.
The trial court subsequently granted dismissal of Ybarra’s complaint for failure to state a claim upon which relief could be granted, ruling that the subrogated tort claim upon which State Farm took default judgment against Ybarra was not a “debt” as defined by the CFDCPA and therefore the requirements for collection of a debt imposed by the Act did not apply to Greenberg & Sada. On appeal by Ybarra, the Court of Appeals affirmed the trial court’s decision finding that the CFDCPA regulates only the collection of obligations to pay money arising from consumer transactions.
In upholding both lower courts’ decisions, the Colorado Supreme Court distinguished claims arising from tort and found that such claims do not obligate a tortfeasor to pay monetary damages and, therefore, do not constitute a debt within the contemplation of the CFDCPA. The Supreme Court ruled that an insurance contract providing for the subrogation of the rights of an injured insured is not a transaction giving rise to an obligation of the tortfeasor to pay money; rather it is a change in the person to whom the obligation to pay is owed. Consequently, it cannot constitute a transaction creating debt within the contemplation of the CFDCPA.