Key Points

  • The FDCPA originator exclusion requires two elements: the collector must have originated the debt and must be collecting on behalf of another person.
  • The originator exclusion is an affirmative defense, so defendants bear the burden of proof and cannot invoke it on a Rule 12(b)(6) motion without establishing its prerequisites.
  • Allegations that a company partners with property owners and maximizes revenue for them do not establish that it collects debts on their behalf.
  • A one-sentence request for leave to amend without explaining proposed amendments is insufficient to preserve amendment rights on appeal.

The Fifth Circuit held Friday that a federal debt-collection statute's exception for debt originators applies only when a collector pursues debts owed to someone else, correcting a district court's reading of the Fair Debt Collection Practices Act while still affirming dismissal of claims against a technology-driven parking company.

In Frankfort v. Metropolis Technologies, the panel ruled that the FDCPA's originator exclusion under 15 U.S.C. § 1692a(6)(F)(ii) has two requirements, not one: the collector must both have originated the debt and be collecting it on behalf of another person. The Northern District of Texas had dismissed the case solely because Metropolis originated the parking fees at issue, without asking whether Metropolis collected those fees for someone else.

"[W]e hold that for a debt collector to successfully invoke the originator exclusion, it must (1) collect debts for another and (2) have originated the debts," Judge King wrote for the court. Citing the Supreme Court's 2017 decision in Henson v. Santander Consumer USA Inc., King noted that "Congress recognized the distinction between a debt 'originated by' the collector and a debt 'owed or due' another."

The case arose from parking fees at garages operated by Metropolis Technologies Inc., which uses cameras and artificial intelligence rather than gates or attendants to track vehicles. When drivers fail to pay through posted QR codes, the company mails violation notices demanding the unpaid parking charge plus a fine that is "multiple times the parking charge."

Plaintiffs Todd Frankfort and Curtis Goodban each received such notices after parking at Metropolis garages in Dallas and Houston. Goodban incurred a $5 parking fee for a 16-minute stay and was fined $75.25. Frankfort incurred a $9 fee and was fined $30.25. They filed a putative class action alleging that Metropolis's business model was designed "to manufacture and encourage an individual's non-compliance—so Metropolis can later coerce the Violation Fine from an individual and generate higher returns for itself."

The district court granted Metropolis's motion to dismiss, concluding that even if the company qualified as a debt collector, it fell within the originator exclusion because it originated the debts. The Fifth Circuit found that analysis incomplete. Because the exclusion's text applies only to persons "collecting or attempting to collect any debt owed or due . . . another," a defendant invoking it must satisfy both elements.

The appeals court also held that the exclusion is an affirmative defense, meaning Metropolis bears the burden of establishing it applies rather than the plaintiffs having to negate it in their complaint. "Exceptions to statutory definitions are generally matters for affirmative defenses," Judge King wrote, and on a motion to dismiss, courts cannot draw factual inferences in the defendant's favor on such matters.

Despite the district court's statutory error, the Fifth Circuit affirmed dismissal on alternative grounds: the plaintiffs never adequately alleged that Metropolis was a debt collector in the first place. The FDCPA defines the term to include businesses whose principal purpose is debt collection or that regularly collect debts owed to another.

The plaintiffs’ own complaint undermined both theories. On the first page, they described Metropolis as "a new player in the parking industry" that uses technology to "provide seamless parking solutions." The court found that the complaint’s factual matter "establishes only that debt collection is some part of [Metropolis’s] business, which is insufficient to state a claim under the FDCPA."

On the theory that Metropolis regularly collects debts for others, the plaintiffs alleged partnerships with facility owners and that the company "maximize[s] revenue for facility owners." But the Fifth Circuit found those allegations showed only that Metropolis maintains business relationships, not that it collects parking debts on partners' behalf. "Appellants failed to plead facts that plausibly connect Metropolis's partnerships with facility owners to its alleged debt collection on their behalf," Judge King wrote.

The court also affirmed the denial of leave to amend the complaint. The plaintiffs had requested leave in a single sentence at the end of their opposition brief without explaining what new facts they would plead. The court held that "a bare bones request to amend pleadings remains futile when it fails to apprise the district court of the facts that the plaintiff would plead in an amended complaint."

The panel consisted of Circuit Judges King, Smith, and Ramirez. The dismissal with prejudice ends the FDCPA claim. The district court declined to exercise supplemental jurisdiction over the plaintiffs' remaining state-law claims under the Texas Fair Debt Collection Practices Act and Texas Deceptive Trade Practices Act.