Rocio Galvan v. Nco Portfolio Management, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
No. 13-2264
ROCIO GALVAN and JOSEPH HAWTHORNE,
individually and on behalf of a class, and
PEOPLE OF THE STATE OF ILLINOIS ex rel.
ROCIO GALVAN and JOSEPH HAWTHORNE,
Plaintiffs-Appellants,
v.
NCO PORTFOLIO MANAGEMENT, INC.,
Defendant-Appellee.
No. 13-2266
ROCIO GALVAN and JOSEPH HAWTHORNE,
individually and on behalf of a class, and
PEOPLE OF THE STATE OF ILLINOIS ex rel.
ROCIO GALVAN and JOSEPH HAWTHORNE,
Plaintiffs-Appellants,
v.
NCO FINANCIAL SYSTEMS, INC.,
Defendant-Appellee.

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2 Nos. 13-2264 & 13-2266
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 11 C 4561 & 11 C 3918 — Matthew F. Kennelly, Judge.
ARGUED FEBRUARY 20, 2014 — DECIDED JULY 21, 2015
Before EASTERBROOK, MANION, and SYKES, Circuit Judges.
SYKES, Circuit Judge. For 40 years Illinois regulators and
debt collectors have played a kind of cat-and-mouse game. The
legislature has gradually expanded the scope of the business
activities that trigger the requirements of the Illinois Collection
Agency Act (“ICAA” or “the Act”), 225 ILL. COMP. STAT. 425/1
et seq., and the industry has responded by finding ways to do
business without engaging in those activities. The question in
this case is whether passive debt buying was covered by the
Act before the most recent revision in 2013. The district court
said “no,” but the Illinois Supreme Court recently held
otherwise. In LVNV Funding, LLC v. Trice (“Trice II”), 32 N.E.3d
553, 559 (Ill. 2015), the state high court concluded that a passive
debt buyer “clearly qualifies as a ‘collection agency’ as defined
in section 3 of the Act.” That holding resolves the sole issue in
this appeal. We reverse and remand for further proceedings.

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Nos. 13-2264 & 13-2266 3
I. Background
From June 2006 to June 2011, NCO Portfolio Management,
Inc., purchased large quantities of Illinois consumers’ defaulted
debt and referred the collection of this debt to its sister corpo-
ration NCO Financial Systems, Inc., an Illinois-licensed debt
collector, and also to outside attorneys, who are exempt from
the ICAA. See 225 ILL. COMP. STAT. 425/2.03(5). NCO Portfolio
carefully avoided direct collection activities and did not
communicate with debtors or credit-reporting agencies,
leaving those tasks to NCO Financial and outside counsel. As
such, NCO Portfolio did not consider itself a ”collection
agency” subject to the registration requirement of the ICAA,
see id. § 425/4, and did not in fact register with the licensing
authorities. During this time period, NCO Financial engaged
in various efforts to collect the debts NCO Portfolio referred to
it, and outside lawyers filed 2,749 lawsuits on NCO Portfolio’s
behalf.
The named plaintiffs in this class action are two Illinois
consumers whose debts NCO Portfolio bought and referred to
NCO Financial or outside counsel for collection during the
relevant time period. They sued in state court alleging that
NCO Portfolio engaged in unlawful unlicensed debt collection
in violation of the ICAA. NCO Portfolio removed the case to
federal court under the Class Action Fairness Act. See 28 U.S.C.
§ 1332(d). In a second case filed in federal court following
removal, the same plaintiffs alleged that NCO Financial
violated the Act because it knew or should have known that
NCO Portfolio was an unlicensed debt collector and could not
lawfully collect debts in Illinois.

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4 Nos. 13-2264 & 13-2266
The district court consolidated the two cases and certified
a class of Illinois consumers whose debts NCO Portfolio
purchased and referred for collection to NCO Financial or
outside counsel between June 8, 2006, and June 28, 2011. The
defendants moved for summary judgment, arguing that NCO
Portfolio was not a collection agency under the ICAA during
the class period and thus was not required to register. The
district judge agreed, relying in part on deposition testimony
from a lawyer in the Illinois Department of Financial and
Professional Regulation, the agency charged with enforcing the
ICAA, who offered his opinion that the Act did not apply to
passive debt buyers like NCO Portfolio until 2013, when it was
amended to add an explicit definition of “debt buyer.” The
court entered judgment for the defendants, and the plaintiffs
appealed. We heard oral argument and then held the case
pending the Illinois Supreme Court’s decision in Trice II.
II. Discussion
The sole issue on appeal is whether NCO Portfolio was a
collection agency under the ICAA and thus required to register
during the relevant time period—June 2006 to June 2011. As
originally briefed by the parties, the question was complicated
by a series of amendments to the Act beginning in 2008. The
state supreme court’s decision in Trice II has greatly simplified
matters. Still, a little history is helpful.
The ICAA regulates the activities of “collection agencies”
operating in Illinois. Two separate statutory provisions bear on
the meaning of that term. Section 2.02 defines the term
“collection agency,” and section 3 provides a list of discrete

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Nos. 13-2264 & 13-2266 5
acts that constitute “act[ing] as a collection agency.” 225 ILL.
COMP. STAT. 425/2.02, 3. Confusingly, the provisions are not
synonymous, and neither the Act nor any decision of the
Illinois Supreme Court clarifies the relationship between the
two. (We’ll address the import of Trice II in a moment.) Adding
to the confusion, the provisions were revised in several
important respects in 2008 and 2013. The general thrust of
these amendments has been to expand the scope of the
regulatory scheme.
Before 2008, section 2.02 defined “collection agency” as
“any person, association, partnership, corporation, or legal
entity who, for compensation, either contingent or otherwise, or
for other valuable consideration, offers services to collect an
alleged delinquent debt.” § 425/2.02 (emphases added). This
definition limited the Act’s application to persons or entities
offering collection services to others for compensation.
Section 2.03 provides that the ICAA “does not apply to
persons whose collection activities are confined to and are
directly related to the operation of a business other than that of
a collection agency.” § 425/2.03. This section goes on to list
persons and entities that are specifically exempt, including
licensed attorneys, public officials and judicial officers, and
certain kinds of businesses (e.g., banks, insurance companies,
retail stores acting on their own account). Id. As relevant here,
the exemption language of the Act has remained the same.
Section 3 defines what it means to “act[] as a collection
agency.” Before 2008, this section provided as follows:

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6 Nos. 13-2264 & 13-2266
A person, association, partnership, corporation,
or other legal entity acts as a collection agency
when he or it:
…
(b) Receives, by assignment or otherwise, ac-
counts, bills, or other indebtedness from any
person owning or controlling 20% or more of the
business receiving the assignment, with the
purpose of collecting monies due on such ac-
count, bill or other indebtedness; [or]
…
(d) Buys accounts, bills[,] or other indebtedness
with recourse and engages in collecting the
same; … .
§ 425/3.
Effective January 1, 2008, the legislature amended the
definition of “collection agency” in section 2 and also added a
definition of “debt collection.” See An Act Concerning Regula-
tion, 2007 Ill. Laws 6460, 6460. In relevant part, section 2 now
provides:
“Debt collection” means any act or practice in
connection with the collection of consumer debts.
“Debt collector”, “collection agency”, or
“agency” means any person who, in the ordinary
course of business, regularly, on behalf of himself
or herself or others, engages in debt collection.
225 ILL. COMP. STAT. 425/2 (2008) (emphases added).

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Nos. 13-2264 & 13-2266 7
The 2008 amendments also removed the phrase “with
recourse” from subsection 3(d). That subsection now states: “A
person, association, partnership, corporation, or other legal
entity acts as a collection agency when he or it: … (d) Buys
accounts, bills[,] or other indebtedness and engages in collect-
ing the same.” § 425/3.
The 2008 amendments thus eliminated any requirement
that a collection agency offer services to collect debts for others
for compensation. A business that buys consumer debt and
engages in collecting it “acts as a collection agency” under
section 3(d), and the amended section 2 clarifies that this
includes acting on one’s own behalf.
In 2013 the ICAA was amended again, adding an explicit
definition of “debt buyer” to section 2. Effective January 1,
2013, the term “debt buyer” under the Act
means a person or entity that is engaged in the
business of purchasing delinquent or charged-off
consumer loans or consumer credit accounts or
other delinquent consumer debt for collection
purposes, whether it collects the debt itself or
hires a third-party for collection or an attorney-
at-law for litigation in order to collect such debt.
§ 425/2. The 2013 amendments also added a provision explic-
itly stating that debt buyers “shall be subject to all of the terms,
conditions, and requirements of this Act, except as otherwise
provided for in subsection (b) of Section 8.6 of this Act.”
225 ILL. COMP. STAT. 425/8.5. Section 8.6, in turn, provides that
debt buyers need not comply with certain parts of the

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8 Nos. 13-2264 & 13-2266
regulatory scheme, such as the requirement to file a surety
bond and maintain a trust account. Id. § 425/8.6.
In their original briefs, the parties debated whether a
passive debt buyer like NCO Portfolio qualified as a collection
agency under the ICAA before the 2008 amendments, after the
2008 amendments, or never during the class period (because the
Act did not specifically define the term “debt buyer” until
2013). The debate centered on the relationship between the
definitions in section 2 and the language in section 3, which
explains what it means to “act[] as a collection agency” and
includes the act of “buy[ing] … indebtedness and engag[ing]
in collecting the same.” § 425/3(d). The main interpretive
question was whether section 3 expands the coverage of the
Act beyond the definitions in section 2. Stated differently, the
statutory puzzle was whether section 3 activity is independ-
ently sufficient to trigger the regulatory duties of the Act.
Secondarily the parties debated the import of the 2008 amend-
ment removing the “with recourse” language from
subsection 3(d).
The Illinois Supreme Court’s decision in Trice II resolves the
interpretive issue, making it unnecessary for us to address the
nuances of the parties’ arguments. Although the court’s
holding is straightforward, the case has a convoluted proce-
dural history and requires some unpacking.
Matthew Trice defaulted on his Citibank credit-card debt.
Citibank sold the delinquent debt to LVNV Funding, LLC,
which in turn hired an Illinois lawyer to collect it. Trice II,
32 N.E.3d at 556. The lawyer sued Trice and obtained a
judgment in favor of LVNV. Trice, who was then proceeding

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Nos. 13-2264 & 13-2266 9
pro se, did not appeal. Id. Sometime later he hired a lawyer,
who filed a petition to vacate the judgment, see 735 ILL. COMP.
STAT. 5/2-1401, alleging that LVNV was a collection agency
under the ICAA and had not registered as required by the Act,
Trice II, 32 N.E.3d at 556. Trice’s attorney argued that the
judgment was void as an unlawful act of debt collection by an
unregistered collection agency. The circuit court concluded
that even if LVNV was a collection agency and thus required
to register under the Act, its failure to do so did not render the
judgment void. Id.
The Illinois Appellate Court reversed. The court held that
if LVNV was in fact unlicensed, then the judgment was void.
Id. at 556–57; see also LVNV Funding, LLC v. Trice (“Trice I”),
952 N.E.2d 1232, 1237 (Ill. App. Ct. 2011). The court said that a
debt buyer acts as a collection agency when it purchases a debt
and sues to collect it, and absent registration commits a crime
when it does so. Trice I, 952 N.E.2d at 1237. The court re-
manded the case for a hearing to determine whether, as Trice
alleged in his petition, LVNV was not registered at the time it
filed suit. Id. The court also said that LVNV would be permit-
ted to raise constitutional challenges to the ICAA on remand.
Id.
Sure enough, on remand LVNV argued that parts of the
Act were unconstitutionally vague and violated its rights to
due process and equal protection, and the circuit court agreed.
Trice II, 32 N.E.3d at 558. The court’s constitutional ruling made
the judgment directly appealable to the Illinois Supreme Court,
see ILL. SUP. CT. R. 302(a)(1)), and Trice duly appealed to the
state high court.

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10 Nos. 13-2264 & 13-2266
On February 27, 2015, the state supreme court vacated the
circuit court’s judgment, sidestepping the constitutional
arguments and resolving the case on other grounds. Trice II,
32 N.E.3d at 558–59. First, the court held that LVNV qualified
as a collection agency under the ICAA in two respects:
(1) under subsection 3(b) as the “assignee” of Citibank; and
(2) under subsection 3(d) as a “debt buyer,” id. at 559 (or to use
the statutory language, as an entity that “buys … indebtedness
and engages in collecting the same,” § 425/3(d)). “[I]n either
case,” the court said, “[LVNV] clearly qualifies as a ‘collection
agency’ as defined in section 3 of the Act and is thus subject to
the registration requirement of section 4.” Trice II, 32 N.E.3d at
559.
Second, the state high court held that “any error in failing
to register did not deprive the circuit court of jurisdiction.” Id.
at 563. As such, “the circuit court’s judgment is not
void … [and] the appellate court erred in reversing the circuit
court’s initial denial of Trice’s section 2-1401 petition.” Id. The
court remanded with instructions to reinstate and confirm the
judgment in favor of LVNV. Id. at 565. Rehearing was denied
on May 26, 2015, and the opinion in Trice II became final on
June 30, 2015. See ILL. SUP. CT. R. 368(a).
In light of Trice II, the original briefs in this case are now
largely obsolete. The parties have filed Rule 28(j) letters
agreeing that the state supreme court’s decision in Trice II
means that NCO Portfolio acted as a collection agency during
the class period. We add our agreement to theirs. The state
high court’s decision makes it clear that passive debt buyers
using third parties to collect the debt do indeed qualify as

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Nos. 13-2264 & 13-2266 11
collection agencies under section 3 of the Act—under either
subsection 3(b) or subsection 3(d)—and this was so even before
2013, when the ICAA was amended to add a specific definition
of “debt buyer” to section 2. (Trice II was decided under the
pre-2013 version of the Act.)
In their Rule 28(j) letter, the defendants raise several
reasons why they should nonetheless prevail, but these
arguments are new and thus undeveloped and should be
fleshed out in the district court in the first instance. A remand
is in order.
Accordingly, based on Trice II, we hold that NCO Portfolio
qualified as a collection agency under the ICAA during the
class period. We REVERSE the judgment of the district court and
REMAND for further proceedings.

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