(CN) - A Kansas federal judge has tossed a class action that accused a law firm of illegally collecting debts by charging excessive post-judgment interest in violation of a 12 percent maximum under state law.
U.S. District Judge Eric F. Melgren granted defendant Cohen, McNeile & Pappas P.C.'s motion to dismiss on September 18.
Named plaintiffs Donald M. Browning and Gabrielle Browning sued the Leawood, Kansas-based law firm in state court in 2011, accusing it of violating the federal Fair Debt Collection Practices Act and Kansas Consumer Protection Act by charging them 26.15 percent and 23.10 percent interest, respectively, on post-judgment debt.
The Brownings filed their complaint after the law firm sued them over small claims consumer debt that was then converted to judgment debt when the court ruled in the creditor's favor.
Later removed to Wichita Federal Court, the suit hinged on the Brownings' contention that the defendant is collecting interest at an illegally excessive rate and that it abused judicial process when it altered a post-judgment interest provision of a standardized, pre-written judgment form filled out for Johnson County.
The defendant responded that it is allowed to charge the higher rate under state law "because the interest rate on the underlying consumer debt represents a contract between the debtor and creditor that carries through to the judgment debt."
Melgren was not persuaded by the suit, writing that "because plaintiffs' claims for relief are based on an improper reading of Kansas statutes, and because plaintiffs have not presented sufficient support for the court to conclude that a plausible claim for relief exists under the facts alleged, the court grants Defendant's motion to dismiss."
In his 22-page opinion, Melgren wrote that it is ambiguous which of two competing state statutes apply to the facts of the case.
"Both sections discussing post-judgment interest apply to the judgment against plaintiffs," he wrote. "But applying the plain language of the statutes to this case renders them incapable of simultaneous application- under section 16-204(e)(2), the post-judgment interest rate is 12 percent, and under section 16-205, defendant may collect the same interest rate that applied to plaintiffs' underlying debt."
As a result, Melgren was forced to consider case law and canons of statutory construction to determine which applies. He concluded that neither the plain language of the 12 percent limit nor case law supported the plaintiff's argument.
"First, the Kansas legislature prefaced all provisions of Kan. Stat. Ann. §16-204 with the phrase, 'Except as otherwise provided in accordance with law.' That phrase indicates that other interest rates - including higher interest rates - may supersede the provisions of section 16-204," the judge wrote. "Second, section 16-204(e)(2) does not say that twelve percent is the maximum interest rate authorized by law. And although section 16-204(e)(2) says that 'the rate of interest on judgments ... shall be 12 percent per annum,' the Kansas Supreme Court has repeatedly interpreted 'shall' to mean 'may' within the context of certain statutes."
Furthermore, Melgren wrote that it would be bad public policy to support the statute limiting the interest rate and that Kansas courts have generally allowed parties to choose the terms that they will be bound to under contract.
"Having negotiated those terms, it would be unfair for a party to escape its contractual obligations by defaulting on the contract," he wrote. "Section 16-205(a) is therefore "the legislature's recognition that a party is entitled to the bargained-for interest rate until paid in full."
Melgren also ruled the Brownings failed to state a common law claim for abuse of process regarding the defendant's changes to the judgment form, finding they were "unclear" as to their exact theory of recovery.
"Rather than leaving an ambiguous term in the judgment form, defendant changed the offending provision to reflect the appropriate interest rate, as permitted by Kan. Stat. Ann. § 16-205(a)," Melgren wrote. "Because it comports with Kansas law and the local rules for actions under Chapter 61, the substance of Defendant's alteration was not an abuse of process." (top of page 20) He also ruled the plaintiffs failed to state claim under FDCPA and KCPA for abuse of process because the defendant did not "make false or deceptive representations on court orders or otherwise abuse judicial process."
"Defendant was entitled to collect interest at a "statutory" rate - even if the applicable statute was not the one advocated by plaintiffs - and that statutory rate should be reflected in the parties' judgment forms," he wrote. "Furthermore, abuse of process generally involves 'some form of extortion, using the process to put pressure upon the other to compel him to pay a different debt.' Plaintiffs do not allege that they were confused, let alone exploited, by Defendant's line-item alteration of the court's journal entry and judgment form."
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