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Security Finance v. Kirsch

Supreme Court of Wisconsin

April 19, 2019

Security Finance, Plaintiff-Respondent,
v.
Brian Kirsch, Defendant-Appellant-Petitioner.

          ORAL ARGUMENT: February 1, 2019

         REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 382 Wis.2d 271, 915 N.W.2d 730 (2018 - unpublished)

          Circuit Court Washington County L.C. No. 2017SC271 Todd K. Martens Judge.

          For the defendant-appellant-petitioner, there were briefs filed by Briane F. Pagel, and Lawton & Cates, S.C., Madison. There was an oral argument by Briane F. Pagel.

          For the plaintiff-respondent, there was a brief filed by Lisa M. Lawless, Marci V. Kawski, Edward J. Heiser, Jr., and Husch Blackwell LLP, Milwaukee. There was an oral argument by Lisa M. Lawless.

          An amicus curiae brief was filed on behalf of Legal Action of Wisconsin, Inc., by Jessica Roulette, Gregory Myszkowski, Elizabeth Stinebaugh, Nicole Zimmer, and Legal Action of Wisconsin, Inc, Milwaukee.

          An amicus curiae brief was filed on behalf of Credit Union National Association and Wisconsin Credit Union League, by John W. Raihala and Clifford & Raihala, S.C., Madison.

          An amicus curiae brief was filed on behalf of Legal Aid Society of Milwaukee, Inc., by Karen M. Bauer, Dana M. Roth, and Legal Aid Society of Milwaukee, Inc., Milwaukee.

          ANNETTE KINGSLAND ZIEGLER, J.

         ¶1 This is a review of an unpublished decision of the court of appeals, Security Finance v. Kirsch, No. 2017AP1408, unpublished slip op. (Wis. Ct. App. Apr. 11, 2018), affirming the Washington County circuit court's order.[1] The order granted Security Finance's ("Security") motion to dismiss Brian Kirsch's ("Kirsch") counterclaims against Security arising under Wis. Stat, chs. 425 and 427 (2015-16) .[2] The court of appeals affirmed the circuit court, concluding that Kirsch's counterclaims were properly dismissed.

         ¶2 This court must consider whether a debtor who has been sued on a consumer credit transaction without first receiving a notice of right to cure default under ch. 425 may sue the creditor for damages under ch. 427, the Wisconsin Consumer Act ("WCA"). We conclude that a creditor's failure to provide such notice does not constitute a sufficient basis for relief under ch. 427. As a result, Kirsch's counterclaims were properly dismissed, and we affirm the court of appeals.

         I. FACTUAL BACKGROUND AND PROCEDURAL POSTURE

         ¶3 Security and Kirsch entered into a loan agreement, whereby Security loaned Kirsch $1, 000 and Kirsch agreed to pay it back with interest in 12 equal payments from July 1, 2016, to June 1, 2017. Kirsch defaulted on the payment obligation. On February 6, 2017, Security filed a small claims lawsuit against Kirsch to enforce the loan agreement and collect the alleged debt. Kirsch answered and counterclaimed, alleging that Security filed this action "seeking to collect money without, upon information and belief, serving defendant with a notice of right to cure default which satisfies the requirements laid out in [Wis. Stat. §§] 425.104 and [425.]105," seeking damages allowed under Wis.Stat. § 427.104. Specifically, Kirsch alleged that Security "has no right to file an action without first serving a sufficient notice of right to cure default," and that this failure "constitutes a violation of [§] 427.104(1)(g) . . . and a violation of [Wis. Stat. §] 425.302." Thereafter, Security sought to voluntarily dismiss the complaint, without prejudice and Kirsch objected. The case was reopened, and Kirsch filed an amended answer and counterclaims which added a claim that Security violated § 427.104 (1) (j) .

         ¶4 Security moved to dismiss Kirsch's counterclaims. The circuit court granted the motion to dismiss, stating that Kirsch "baldly asserts that failure to provide proper notice of the right to cure default can constitute threatening or harassing behavior." The circuit court further stated that "[i]n general, the remedy for the violation alleged is dismissal without prejudice." The circuit court concluded that Kirsch made "no showing [he] would be entitled to any other remedy." The circuit court explained:

In terms of the dismissal without prejudice, the defendant's counterclaim is moot, and the argument that the defendant is entitled to these additional remedies requires a . . . tortured interpretation of the statute and the facts, and that's not an interpretation that I am required to accept.

         As a result, the circuit court dismissed the counterclaim relating to the notice of right to cure default.

         ¶5 The court of appeals affirmed the circuit court's dismissal. Kirsch, No. 2017AP1408, unpublished slip op., ¶¶1, 26.

         ¶6 The petition for review presented one issue:

Whether a customer [who has been] sued on a consumer credit transaction without first receiving a notice of right to cure default may sue the merchant for damages under chapter 427 of the Wisconsin Consumer Act?

         ¶7 This court's order granting Kirsch's petition for review provides that "pursuant to Wis.Stat. § (Rule) 809.62(6), [Kirsch] may not raise or argue issues not set forth in the petition for review unless otherwise ordered by the court."

         II. STANDARD OF REVIEW

         ¶8 Whether a complaint or a counterclaim "states a claim upon which relief can be granted is a question of law for our independent review; however, we benefit from discussions of the court of appeals and circuit court." Data Key Partners v. Permira Advisers LLC, 2014 WI 86, ¶17, 356 Wis.2d 665, 849 N.W.2d 693 (citing DeBruin v. St. Patrick Congregation, 2012 WI 94, ¶10, 343 Wis.2d 83, 816 N.W.2d 878).

         ¶9 In reviewing a motion to dismiss, this court accepts factual allegations in the complaint or counterclaim as true. Id., ¶18 (citing Strid v. Converse, 111 Wis.2d 418, 422-23, 331 N.W.2d 350 (1983)) . However, this court does not accept legal conclusions asserted in a complaint or counterclaim, "and legal conclusions are insufficient to withstand a motion to dismiss." Id. (citing John Doe 67C v. Archdiocese of Milwaukee, 2005 WI 123, ¶19, 284 Wis.2d 307, 700 N.W.2d 180; Mitchell v. Lawson Milk Co., 532 N.E.2d 753, 756 (Ohio 1988)).

         ¶10 This case requires the interpretation and application of Wis.Stat. § 427.104 to determine if Kirsch's claim that Security violated § 427.104 by commencing an action against him before providing a notice of default and right to cure survives Security's motion to dismiss. "The interpretation and application of a statute present questions of law that this court reviews de novo while benefitting from the analyses of the court of appeals and circuit court." State v. Alger, 2015 WI 3, ¶21, 360 Wis.2d 193, 858 N.W.2d 346 (citing State v. Ziegler, 2012 WI 73, ¶37, 342 Wis.2d 256, 816 N.W.2d 238).

         III. ANALYSIS

         ¶11 Kirsch argues that Security's failure to provide sufficient notice of right to cure required by Wis.Stat. §§ 425.104 and 425.105 constitutes a violation of Wis.Stat. § 427.104(1)(g) and (1)(j). Because the petition for review concerns only the ch. 427 claim, we cabin our analysis to whether the ch. 425 failure to send sufficient notice of right to cure default can form the basis for a violation of ch. 427 of the WCA.[3]

         ¶12 Kirsch argues that he is entitled to relief under Wis.Stat. § 427.104 because Security filed the lawsuit against him without first sending a notice of right to cure under ch. 425. He argues that that dismissal is not the sole consequence for failing to provide notice because § 427.104 independently creates a cause of action for which § 427.105 provides a remedy. Kirsch's argument, however, fails to connect how a ch. 425 notice failure transforms into a prohibited practice under § 427.104 (1) (g) or (1) (j) .

         ¶13 We begin with the language of Wis.Stat. § 427.104(1). See State ex rel. Kalal v. Cir. Ct. for Dane Cty., 2004 WI 58, ¶45, 271 Wis.2d 633, 681 N.W.2d 110 ("[S]tatutory interpretation begins with the language of the statute."). Section 427.104 states, in relevant part as follows:

In attempting to collect an alleged debt arising from a consumer credit transaction or other consumer transaction, including a transaction primarily for an agricultural purpose, where there is an agreement to defer payment, a debt collector may not:
(a) Use or threaten force or violence to cause physical harm to the customer or the customer's dependents or property;
(b) Threaten criminal prosecution;
(c) Disclose or threaten to disclose information adversely affecting the customer's reputation for credit worthiness with knowledge or reason to know that the information is false;
(d) Initiate or threaten to initiate communication with the customer's employer prior to obtaining final judgment against the customer, except as permitted by statute including specifically s. 422.404, but this paragraph does not prohibit a debt collector from communicating with the customer's employer solely to verify employment status or earnings or where an employer has an established debt counseling service or procedure;
(e) Disclose or threaten to disclose to a person other than the customer or the customer's spouse information affecting the customer's reputation, whether or not for credit worthiness, with knowledge or reason to know that the other person does not have a legitimate business need for the information, but this paragraph does not prohibit the disclosure to another person of information permitted to be disclosed to that person by statute;
(f) Disclose or threaten to disclose information concerning the existence of a debt known to be reasonably disputed by the customer without disclosing the fact that the customer disputes the debt;
(g) Communicate with the customer or a person related to the customer with such frequency or at such unusual hours or in such a manner as can reasonably be expected to threaten or harass the customer;
(h) Engage in other conduct which can reasonably be expected to threaten or harass the customer or a person related to the customer;
(i) Use obscene or threatening language in communicating with the customer or a person related to the customer;
(j) Claim, or attempt or threaten to enforce a right with knowledge or reason to know that the right does not exist;
(k) Use a communication which simulates legal or judicial process or which gives the appearance of being authorized, issued or approved by a government, governmental agency or attorney-at-law when it is not;
(L) Threaten action against the customer unless like action is taken in regular course or is intended with respect to the particular debt; or
(m) Engage in conduct in violation of a rule adopted by the administrator after like conduct has been restrained or enjoined by a court in a civil action by the administrator against any person pursuant to the provisions on injunctions against false, misleading, deceptive or unconscionable agreements or conduct (ss. 426.109 and 426.110).

§ 427.104(1). The statute prohibits specific harassing or threatening conduct towards debtors.[4] Specifically, Kirsch claims that Security violated § 427.104(1) (g) and (1) (j) by failing to provide ch. 425 notice of right to cure. Section 427.104(1) (g) prohibits a creditor from "[c]ommunicat[ing] with the customer . . . with such frequency or at such unusual hours or in such a manner as can reasonably be expected to threaten or harass the customer." Kirsch alleges that Security's filing suit without first providing a notice of right to cure in and of itself constitutes a prohibited communication under subsec. (1) (g). Notably, Kirsch's counterclaim is completely devoid of any allegation that Security "[c]ommunicate[d] with [Kirsch] . . . with such frequency or at such unusual hours or in such a manner as can reasonably be expected to threaten or harass [Kirsch]." In other words, the procedural defect of filing suit without first providing a notice of default and right to cure as outlined in ch. 425 does not create liability under § ...


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