On August 1, the U.S. Court of Appeals for the Tenth Circuit upheld a trial court’s order granting summary judgment in favor of a debt buyer holding that claim preclusion barred the plaintiff’s claims brought under the Fair Debt Collections Practices Act (FDCPA) and Utah’s Unfair Claims Settlement Practices Act (UCSPA).

The decision in McMurray v. Forsythe Finance LLC involved an allegation that the debt buyer was not licensed as a collection agency in Utah when it attempted to collect the plaintiff’s debt.

The case arose out of the plaintiff’s purchase of a vehicle pursuant to a retail installment contract. When the plaintiff defaulted on his payment obligations, the vehicle was repossessed and sold at auction. The sale resulted in a deficiency balance and the debt was sold to the defendant. The defendant then brought a collection action against the plaintiff in Utah state court. When the plaintiff failed to respond to the defendant’s motion for summary judgment, a default judgment in state court was entered in favor of the debt buyer.

The plaintiff then filed a putative class action against the debt buyer in state court, asserting claims under the FDCPA and UCSPA based on the allegation that the defendant was not registered as a collection agency in Utah when it attempted to collect the debt. The action was removed to federal court and summary judgment was granted in favor of the debt buyer on the grounds that the plaintiff’s claims were barred by claim preclusion. The plaintiff appealed.

Claim preclusion “prevent[s] a party from litigating a legal claim that was or could have been the subject of a previously issued final judgment.” Under Utah law, the court applied a “transactional” test to determine whether the claims “could or should have been raised” in a prior action. While the parties agreed that claim preclusion does not apply to facts that occurred after the initial complaint was filed, they disagreed as to whether it applied to facts that occurred at the time the complaint was filed. The plaintiff argued his injury occurred at the time the defendant filed the debt collection suit as an unlicensed collection’s agency. Based on its analysis of Utah case law, the court rejected the plaintiff’s argument, instead holding the claims arising at the time the suit was filed were indeed precluded. “Because [the plaintiff’s] claims before this [c]ourt arose from the same transaction as his Utah state court claims, they could and should have been raised in the Utah state court action.”

As we previously discussed here, Utah recently took steps to streamline its debt collection regulations by repealing nine statutes, a process that has historically entailed numerous registration forms and fees. The repealed statutes include the requirement that collection agencies register with the Utah Division of Corporations and Commercial Code, record-keeping mandates and restrictions on the assignments of debts.