Hamilton v. United Healthcare of Louisiana, Inc.

REVISED NOVEMBER 7, 2002

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 01-31179

KYLE M. HAMILTON, Plaintiff,

versus

UNITED HEALTHCARE OF LOUISIANA, INC., Defendant.
______________________________________________________________________________

KYLE M. HAMILTON, Plaintiff-Appellant,

versus

HEALTHCARE RECOVERIES, INC., Defendant-Appellee.

Appeals from United States District Court
for the Eastern District of Louisiana

November 1, 2002

1
Before DAVIS, EMILIO M. GARZA, and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Kyle M. Hamilton appeals from the dismissal of his Fair Debt Collection Practices Act

(“FDCPA”), 15 U.S.C. § 1692, et seq. (1997), claim against Healthcare Recoveries, Inc. ("HRI"),

as well as from the district court’s determination that it lacked diversity jurisdiction. He also appeals

from the district court’s refusal to allow him to amend his complaint. For the following reasons, we

REVERSE in part, AFFIRM in part, and REMAND for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In October of 1999, Hamilton was seriously injured in a single-vehicle automobile accident

in which he was a passenger. As a result of the accident, Hamilton required medical and other

treatment. Defendant, United Healthcare of Louisiana, Inc. ("United"), had in force a group health

plan, offered through Hamilton's father's employer, pursuant to which Hamilton was insured as a

dependent. Pursuant to that coverage, United paid for cert ain of the medical and other services

necessitated by the accident, allegedly totaling in excess of $100,000. At the time of the accident,

Hamilton's father also had in effect uninsured and/or underinsured motorist ("UM") coverage

pursuant to two polices with State Farm Insurance Company ("State Farm"). State Farm paid nearly

$250,000 in UM benefits and $5,000 in MedPay benefits to Hamilton pursuant to those policies.

Shortly thereafter, HRI, acting pursuant to its contract with United,1 began sending notices to

Hamilton's father and State Farm in an attempt to enforce subrogation rights that United claimed to

have against any of the proceeds that Hamilton might receive from third parties, including his own

1
HRI provides subrogation enforcement services for insurers such as United pursuant to a
contractual agreement with the insurer. HRI and United are wholly separate business entities with
no common ownership.

2
insurer State Farm. State Farm, through Hamilton's counsel, subsequently paid $57,757.06 out of

the $250,000 UM policy proceeds, to which Hamilton would have otherwise been entitled, to HRI

on behalf of United. Hamilton then retained new counsel who attempted to recover the monies that

United had obtained from State Farm. On February 2, 2001, counsel sent United a letter outlining

in detail why Louisiana Revised Statutes Sections 22:2006(7) and 22:663 precluded the type of

subrogation claims that United had made against the State Farm proceeds. Attached to that letter

was a copy of a state court petition. Hamilton’s state lawsuit sought to recover the funds paid to

United through HRI and asked the Court to enjoin any further attempts by United to either coordinate

benefits or subrogate claims to any future proceeds under the State Farm policies. United removed

the case to federal court alleging that ERISA completely preempted Hamilton’s state law claims.

After United removed, Hamilton filed a putative class action, naming HRI as defendant. In that suit,

Hamilton alleged that HRI's acts during its recovery of funds from himself and others violates the

FDCPA, as well as the Louisiana Unfair Trade Practices Act, LA. REV. STAT. ANN. § 51:1401, et seq.

(West 1987) (“LUTPA”). The two cases were subsequently consolidated and the defendants in both

cases filed motions to dismiss. Thereafter, the district court remanded the United suit to state court.

Hamilton v. United Health Care of La., Nos. Civ. A. 01-585 & 01-650, 2001 WL 536300, at * 7

(E.D. La. May 17, 2001). The district court then considered HRI’s Motion for Judgment on the

Pleadings and Alternative Motion for Summary Judgment, which the court treated as a motion to

dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). By an order entered on July 17, 2001,

the motion was granted in part, and the court dismissed Hamilton’s FDCPA claim with prejudice,

finding that Hamilton failed to state a claim because HRI was not collecting a “debt” under the

FDCPA.

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 On August 21, 2001, the district court concluded that no independent basis for federal subject

matter jurisdiction existed over the remaining state law claims because Hamilton failed to establish

that the amount in controversy exceeded $75,000 for purposes of diversity jurisdiction. The court

refused to exercise supplemental jurisdiction over the state law claims. As such, the state law claims

were dismissed without prejudice. Hamilton then filed a Motion for Reconsideration and Motion for

Leave to File a Supplemental and Amended Complaint seeking to add new theories of recovery in

order to cure the amount-in-controversy defect. The district court denied these motions. In doing

so, it concluded that the proposed amendments to Hamilton’s complaint would not cure the amount

in controversy defect. Judgment was entered and Hamilton appealed.

STANDARD OF REVIEW

We review a Rule 12(b)(6) dismissal de novo, accepting all well-plead facts as true. Abrams

v. Baker Hughes, Inc., 292 F.3d 424, 430 (5th Cir. 2002). Questions of fact are viewed in the light

most favorable to the plaintiffs, and questions of law are reviewed de novo. Mowbray v. Cameron

County, Tex., 274 F.3d 269, 276 (5th Cir. 2001). “Rule 12(b)(6) motions should not be granted

unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim

which would entitle him to relief.” Castro Romero v. Becken, 256 F.3d 349, 353 (5th Cir. 2001)

(internal quotations and citations omitted).

DISCUSSION

The FDCPA was enacted in part “to eliminate abusive debt collection practices by collectors.”

15 U.S.C. § 1692(e) (1997). “As such, the FDCPA enumerates several practices considered contrary

to that goal, and forbids debt collectors from taking such action.” Poirier v. Alco Collections, Inc.,

107 F.3d 347, 349 (5th Cir. 1997). For the FDCPA to apply, the obligation at issue must qualify as

4
a “debt,” defined as “any obligation or alleged obligation of a consumer to pay money arising out of

a transaction in which the money, property, insurance, or services which are the subject of the

transaction are primarily for personal, family, or household purposes, whether or not such obligation

has been reduced to judgment.” § 1692a(5).

The district court dismissed Hamilton’s FDCPA claim pursuant to Rule 12(b)(6) after

concluding that the subrogation claim that HRI sought to enforce on behalf of United was not a

“debt” within the meaning of the FDCPA. The court began its analysis by noting that several key

elements of the term “debt” appear to be present in this case. The court concluded that Hamilton

entered into a consensual “transaction” for “insurance” and purchased that insurance for “personal

or family use” for which Hamilton was “obligated to pay money” to United if its subrogation claim

was valid. The court found that the question of whether Hamilton’s obligation to pay “arises out of”

his transaction with United to be more problematic. The court recognized that “but for” Hamilton’s

health insurance contract with United, his recovery on the UM proceeds would create no obligation.

However, in rejecting Hamilton’s argument that the “debt” arose out of his contract with United, the

court relied on Garner v. Augustine, Kern & Levens, Ltd., No. 93 C 5968, 1994 WL 48589 (N.D.

Ill. Feb. 16, 1994). In Garner, Health Care Services Corporation (“Health Care”) administered group

health and welfare benefit plans for a number of employers, including Garner’s employer. 1994 WL

48589, at *1. Garner was a member of that plan. Garner’s daughter was injured and Health Care

paid medical benefits to cover her medical care. Health Care filed suit for reimbursement of the

benefits paid after Garner refused to respond to Health Care’s requests for information, which would

allow it to assess whether it had any reimbursement rights by reason of Garner’s recovery from a third

party, or to subsequent letters from Health Care’s counsel. When Health Care’s counsel learned that

5
there was no right of reimbursement, the suit was voluntarily dismissed. Garner then filed a claim

against the law firm representing Health Care, and one of its partners, under the FDCPA and state

law. The dist rict court held that Health Care’s reimbursement claim against its insured was not a

“debt” for purposes of the FDCPA. Id. at *2-3. The court reasoned that the inclusion of “debts”

relating to insurance in § 1692a(5) was “obviously aimed at a consumer who contracts for insurance

coverage and then does not pay the prem ium.” Id. at *2. The court further concluded that the

FDCPA was “not intended to cover the situation here, where an employee or his or her beneficiary

under an employee benefit plan has received benefits that may give rise to a reimbursement obligation

under that plan, then fails to respond to the plan’s bona fide inquiries as to the facts that bear on the

existence or nonexistence of the employees’ or beneficiary’s duty of reimbursement, so that the

insurer is forced to sue.” Id. To hold otherwise, the court concluded, “would unduly strain the

normal meaning of the language that has been used by Congress” in the FDCPA. Id.

Based on Garner, the district court concluded that a contractual subrogation claim, while in

fact “arising out of” the contract of insurance, is not the kind of payment obligation that Congress

intended when it created the FDCPA for the protection of consumers.

Hamilton contends that HRI’s claims against Hamilton “arise[] out of a transaction in which

the . . . insurance [that is] the subject of the transaction [is] primarily for personal, family, or

household purposes.” § 1692a(5). He asserts that the dist rict court erred by failing to find that

HRI’s enforcement of United’s contract-based subrogation rights for reimbursement of benefits paid

by United as Hamilton’s group health insurer constitutes a “debt” under § 1692a(5). To support this

position, Hamilton cites Pollice v. Nat’l Tax Funding, L.P.. 225 F.3d 379, 401 (3d Cir. 2000) (“[T]he

plain meaning of section 1692a(5) indicates that a ‘debt’ is created whenever a consumer is obligated

6
to pay money as a result of a transaction whose subject is primarily for personal, family or household

purposes.”). Further, he argues that the district court’s determination that the contractual

subrogation claim was too attenuated from the original purchase of insurance to be a “debt” under

the FDCPA is contrary to the broad protections afforded by the FDCPA.

Hamilton claims that Garner is distinguishable because it involved a self-funded plan, whereas

Hamilton’s health plan is an insured plan, and here, Louisiana Revised Statute Section 22:663

prohibits United from seeking reimbursement. He argues that Garner’s limitation on the scope of

“debts”–i.e., its conclusion that the FDCPA’s inclusion of insurance was meant to address only non-

payment of premiums by an insured–was based upon the erroneous assumption that there must be an

extension of credit to the consumer.

Additionally, Hamilton claims that his purchase of the United insurance policy is the consumer

transaction that gave rise to United’s obligations to pay medical benefits and its alleged right to seek

reimbursement out of the proceeds of his recoveries against third parties. In support of his claim that

the reimbursement obligation arose from the purchase of insurance, Hamilton relies on Brown v.

Budget Rent-A-Car Sys., Inc., 119 F.3d 922 (11th Cir. 1997). In Brown, Brown rented a truck and

dolly from Budget, and also paid for Loss Damage Waiver (“LDW”) protection. Id. at 923. While

operating the truck, Brown ran into an overpass, and Budget sought reimbursement from Brown and

his insurance company. Brown’s insurance carrier paid for damage to the truck, but Brown refused

to pay the deductible or loss of use fees because he believed they were encompassed by the LDW.

Budget contended that LDW coverage did not apply and that Brown violated the restrictions clause

in the rental agreement, and retained collection agents to initiate collection activities against Brown.

Brown filed suit against the collection agents under the state law and the FDCPA, and the district

7
court dismissed the complaint pursuant to Rule 12(b)(6). The court found that because the alleged

obligations did not arise from an “extension or offer of credit,” there was no “debt” as defined by the

FDCPA. Id. at 924. On appeal, the Eleventh Circuit held that as long as the consumer transaction

creates an obligation to pay, a “debt” is created, and that the extension of credit is not a prerequisite

to existence of a “debt” under the FDCPA. Id. The court concluded that “Budget’s assertion that

Brown is obligated as a result of a consumer transaction suffices to bring the obligation” within the

term “debt.” Id.

HRI counters that there is no “debt” within the definition of the FDCPA because the “subject

of the transaction” from which the obligation to pay arose is not “primarily for personal, family or

household purposes.” § 1692a(5). Contrary to Hamilton’s assertion that the consumer “transaction”

was the purchase of insurance, HRI claims that Hamilton’s reimbursement obligation arose out of the

automobile accident and his subsequent recovery of money from a third party. Further, HRI asserts

that Garner is directly on point, holding that the FDCPA does not apply to

subrogation/reimbursement claims because they do not arise out of a consumer transaction. HRI

claims that, like in Garner, its August 29, 2000 letter was designed to determine whether there was

a reimbursement obligation, not as an attempt to collect an alleged debt because the reimbursement

claim did not arise out of a consumer transaction.

Further, citing Hawthorne v. MAC Adjustment, Inc., 140 F.3d 1367, 1372 (11th Cir. 1998),

HRI asserts that Brown is distinguishable because it concerned whether the FDCPA requires an

extension of credit and did not address whether the alleged debt arose pursuant to a consumer

“transaction.” In Hawthorne, the Eleventh Circuit held that a debt arising from tortious conduct on

the part of the defendants does not constitute a consumer transaction for purposes of the FDCPA.

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Id. at 1373. In discussing its holding in Brown, the court stated in part as follows:

We held that the FDCPA does not require the extension of credit to be applicable to
an obligation. We did not consider the question of whether the obligation at issue in
Brown involved a “transaction” under the FDCPA. It is clear, however, that the facts
delineated in Brown do not exclude the possibility that the obligation in that case
constituted a “debt” under the FDCPA, as Brown’s obligations arose at least in part
out of a business transaction where Brown contracted for what appear to be personal
services (the truck rental and the loss damage waiver protection).

Id. Because no such “transaction”–i.e., contract, business, or consensual

arrangement–occurred in Hawthorn, the court held that Brown did not require the court to

conclude that the tort obligation at issue was covered by the FDCPA. Id.

As with all issues of statutory interpretation, the appropriate place to begin our

analysis is with the text itself. Hughey v. United States, 495 U.S. 411, 415 (1990). We agree

with the Seventh Circuit’s determination that the FDCPA’s definition of “debt” is plain. Bass

v. Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322, 1324 (7th Cir. 1997). The

definition is not “‘beset with internal inconsistencies [or] burdened with vocabulary that

escapes common understanding.’” Id. (quoting EEOC v. The Chicago Club, 86 F.3d 1423,

1434 (7th Cir. 1996)). In the absence of ambiguity, our inquiry ends with the text itself. As

the Bass court noted:

[T]he plain language of the Act defines "debt" quite broadly as "any obligation to pay
arising out of a [consumer] transaction." In examining this definition, we first focus
on the clear and absolute language in the phrase, "any obligation to pay." Such
absolute language may not be alternatively read to reference only a limited set of
obligations. . . . As long as the transaction creates an obligation to pay, a debt is
created.

Id.

A fundamental canon of statutory construction instructs that in the absence of a

9
statutory definition, we give terms their ordinary meaning. Perrin v. United States, 444 U.S.

37, 42 (1979). “ ‘Arising out of’ are words of much broader significance than ‘caused by.’

They are ordinarily understood to mean ‘originating from[,]’ ‘having its origin in,’ ‘growing

out of’ or ‘flowing from,’ or in short, ‘incident to, or having connection with.’ ” Red Ball

Motor Freight, Inc. v. Employers Mut. Liab. Ins. Co. of Wisc., 189 F.2d 374, 378 (5th Cir.

1951); see also BLACK’S LAW DICTIONARY 102 (7th ed. 1999) (defining “arise” as originating

or stemming from). Moreover, the ordinary meaning of the term "transaction" is a broad

reference to many different types of business dealings between parties, and does not connote

any specific form of payment. Bass, 111 F.3d at 1325 (citing WEBSTER'S NEW WORLD

DICTIONARY 1509 (2d ed. 1986) (defining "transaction" simply as "a business deal or

agreement")). We cannot avoid the inescapable conclusion that the plain meaning of “debt”

encompasses the funds owed in this case. There is no question that the obligation to pay

arose out of Hamilton’s transaction of purchasing insurance. HRI is simply incorrect in its

assertion that the obligation to pay arose out of a tortious act. Hawthorne itself suggests that

Hamilton’s obligations arose out of a consumer transaction for purposes of the FDCPA. As

opposed to Hawthorne, where Hawthorne’s obligations arose from tort law, Hamilton’s

obligations arose from a business transaction where Hamilton contracted for personal and

family services, i.e., insurance. Moreover, the plain meaning of “arising out of” as “stemming

from” leads us to conclude that the obligation to pay arose from the contract/transaction for

insurance.

The district court and Garner’s interpretation of the definition of “debt” is too narrow.

As the Supreme Court stated in Hubbard v. United States, we are prohibited from reading

10
into clear statutory language a restriction that Congress itself did not include. 514 U.S. 695,

703 (1995) (“[A]bsent any indication that doing so would frustrate Congress's clear intention

or yield patent absurdity, our obligation is to apply the statute as Congress wrote it.”

(internal quotations and citation omitted)).

Finally, while "Fifth Circuit law is crystal clear that when, as here, the language of a

statute is unambiguous, this Court has no need to and will not defer to extrinsic aids or

legislative history," our review of the legislative history brings forth nothing that contradicts

our statutory interpretation. See Guilzon v. Comm’r of Internal Revenue, 985 F.2d 819, 823

n.11 (5th Cir. 1993). Congress, through the FDCPA, has legislatively expressed a strong

public policy disfavoring dishonest, abusive, and unfair consumer debt collection practices,

and clearly intended the FDCPA to have a broad remedial scope. See S. REP. NO. 382 at 4

(1977) ("In addition to [the] specific prohibitions, this bill prohibits in general terms any

harassing, unfair, or deceptive collection practice. This will enable the courts, where

appropriate, to proscribe other improper conduct which is not specifically addressed.”),

reprinted in 1977 U.S.C.C.A.N. 1695, 1698; Wright v. Fin. Serv. of Norwalk, Inc., 22 F.3d

647, 650 (6th Cir. 1994) (en banc ) (explaining that Congress wrote broad language into the

FDCPA to forestall abusive practices by debt collectors). For these reasons, and because we

agree with the Bass court’s conclusion that the meaning of “debt” is clear, we hold that the

district court erred in concluding that Hamilton’s obligation to pay HRI did not fall under the

FDCPA. See Bass, 111 F.3d at 1325.

HRI next offers an alternative argument in support of the district court’s Rule 12(b)(6)

dismissal of Hamilton’s complaint. HRI contends that it is not a “debt collector” within the

11
meaning of the statute. Instead, it maintains that it is excluded pursuant to the exemption set

forth in § 1692a(6)(F)(iii), which states that a “debt collector” does not include “any person

collecting or attempting to collect any debt owed or due or asserted to be owed or due

another to the extent such activity . . . concerns a debt which was not in default at the time

it was obtained by such a person.” Hamilton vigorously disagrees.

For purposes of dealing with this argument, we must remain within the bounds of

review permitted for a dismissal pursuant to Rule 12(b)(6). Although HRI filed a motion for

summary judgment, the district court explicitly stated that it was dismissing the case on

12(b)(6) grounds. The district court commented on HRI’s alternative “debt collector”

argument; however, its decision was in no way predicated on it. When dealing with HRI’s

argument , the court noted that it “need not address the parties’ arguments on the ‘debt

collector’ issue” because the “debt” issue was dispositive. Hamilton v. United Healthcare of

La., Nos. Civ. A. 01-585 & 01-650, 2001 WL 812076, at *4 (E.D. La. July 16, 2001).

After considering the district court’s opinion, the parties’ contentions, and the

particular language of the statutory exclusion in dispute, we conclude that further appellate

review is foreclosed by Rule 12(b)(6). The rule constrains us to scrutinize the complaint only.

Resolution of the “debt collector” issue in this case is clearly tied to a determination of the

circumstances surrounding the inception of the debt. Accordingly, we REMAND to the

district court for further consideration of this issue.

Finally, Hamilton urges that the court erred in dismissing its remaining claims because

diversity jurisdiction existed. HRI does not dispute that the parties are diverse; instead, it

maintains that Hamilton has failed to meet the amount-in-controversy requirement. The crux

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of Hamilton’s argument is that attorneys’ fees will raise the amount-in-controversy well above

$75,000.

The district court noted that attorneys’ fees may be imputed to a class representative;

however, it also observed that we have held that imputing fees to a class representative is only

permitted when a statute explicitly provides for attorneys’ fees. Graham v. Henegar, 640

F.2d 732, 736 (5th Cir. 1981). Further, when a statute awards attorneys' fees to the named

plaintiffs in a class action, the fees are attributed solely to the class representatives. In re

Abbott Labs., 51 F.3d 524, 526-27 (5th Cir. 1995); § 1692k(a)(B), (a)(3). Since the court

had already dismissed the FDCPA claim, the court focused on the remaining statutory claim,

the LUTPA claim. Concluding, correctly, that the LUTPA does not allow class action claims,

and that Hamilton’s personal fees would not be enough to push Hamilton above the amount-

in-controversy requirement, the court held that it did not have diversity jurisdiction. We find

no error in this assessment.2

CONCLUSION

For the foregoing reasons, we REVERSE the district court’s determination that the

funds at issue in this case do not qualify as a “debt” under the FDCPA and REMAND for

further proceedings not inconsistent with this opinion. We also AFFIRM the district court’s

decision that diversity jurisdiction did not exist in this case.

REVERSED in part, AFFIRMED in part, and REMANDED.

2
We also find nothing erroneous in the district court’s decision to deny Hamilton’s request to amend his
complaint. Foman v. Davis, 371 U.S. 178, 182 (1962) (explaining that leave to amend need not be given
when amendment would be futile).

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EMILIO M. GARZA, Circuit Judge, concurring in part and dissenting in part:

I agree with the majority’s conclusion that the district court correctly dismissed

Hamilton’s remaining claims for lack of subject matter jurisdiction. In addition, I agree that

it would be inappropriate for us to rule on the issue of whether Healthcare Recoveries, Inc.

(“HRI”) constitutes a “debt collector” under the Fair Debt Collection Practices Act

(“FDCPA”). I cannot, however, agree with the majority’s conclusion that an obligation to

pay an insurance subrogation claim constitutes a “debt” under the FDCPA.

The FDCPA defines a “debt” as follows:

[A]ny obligation or alleged obligation of a consumer to pay
money arising out of a transaction in which the money,
property, insurance, or services which are the subject of the
transaction are primarily for personal, family, or household
purposes, whether or not such obligation has been reduced to
judgment.

15 U.S.C. § 1692a(5) (2000).

The majority opinion focuses on the words “any obligation” and “arising out of,” and

concludes that the FDCPA applies to an insurance subrogation claim. The reasoning in the

majority opinion appears to be as follows: United Health Care of Louisiana, Inc. (“United”)

agreed to provide insurance for Hamilton (via an agreement with his father’s employer). That

insurance agreement is a “transaction” that is “primarily for personal, family, or household

purposes” because it provides health care insurance for employees and their families. The

agreement is a “but for” cause of United’s subrogation claim, for, without the agreement,

United would have no claim for reimbursement. Therefore, the majority concludes, the

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subrogation claim “arises out of” a consumer transaction for insurance, and constitutes a

“debt” for purposes of the FDCPA.

I doubt, however, that the matter is so simple. The word “debt” as defined in the

FDCPA does not have the expansive scope that the majority’s analysis suggests. The Seventh

Circuit (whose decisions are relied on extensively by the majority opinion) has reasoned that

“not all obligations to pay are considered ‘debts’ under the [FDCPA].” Bass v. Stolper,

Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322, 1324 (7th Cir. 1997). On the contrary,

“the definition of ‘debt’ . . . serves to limit the scope of the [Act].” Id.; see also Hawthorne

v. Mac Adjustment, Inc., 140 F.3d 1367, 1371 (11th Cir. 1998) (“[W]e do not hold that every

consensual or business dealing constitutes a ‘transaction’ triggering application of the FDCPA

(such a holding would be contrary to the plain language of the statute limiting applicability

to specified transactions . . .).”).3

In addition, only an extremely broad interpretation of “arising out of” could lead the

majority to conclude that United’s subrogation claim “aris[es] out of” the single transaction

between United and Hamilton. The subrogation claim asserted by United arose out of a string

3
The majority opinion refers to language in Bass suggesting that the FDCPA should be given
a broad interpretation. It is important to keep in mind the context of the Bass court’s statements.
The Seventh Circuit was determining whether it should follow dicta from the Third Circuit’s decision
in Zimmerman v. HBO Affiliate Group, 834 F.2d 1163 (3d Cir. 1987). Zimmerman suggested that
the FDCPA applied only to obligations involving an “extension of credit,” such as credit card debts
or other situations in which a consumer defers payment on an item. Id. at 1168-69. The Seventh
Circuit, in discussing the “absolute language” of the FDCPA, was determining only that the
Zimmerman court was wrong to limit the Act to obligations involving an extension of credit. Bass,
111 F.3d at 1325. As the language quoted in this dissent makes clear, the Bass court did not mean
that there were no limitations on the definition of “debt.” See also Duffy v. Landberg, 133 F.3d
1120, 1123 (8th Cir. 1998) (also referring to the broad wording of the Act in order to reject the dicta
in Zimmerman).

15
of events. First, there was t he insurance contract between United and Hamilton. Second,

there was the contract for uninsured and/or underinsured motorist coverage (“UM policy”)

between Hamilton and State Farm. Third, there was the accident that injured Hamilton.

Fourth, there was United’s payment of Hamilton’s medical bills. Fifth, there was the payment

by State Farm to Hamilton pursuant to the UM policy. So, although one might say that this

subrogation claim arose out of the underlying insurance agreement between United and

Hamilton, one could also say that the claim arose out of any one of these other events. It

would be most accurate to say that the subrogation claim arose out of the combination of

events, and not out of a single transaction.4

Nevertheless, the majority opinion concludes that “[t]here is no question that the

obligation to pay arose out of Hamilton’s transaction of purchasing insurance.” The opinion

supports this conclusion by asserting that this Court has given the phrase “arising out of” an

expansive interpretation. It is true that we have construed the phrase broadly when

interpreting insurance policies. See Am. States Ins. Co. v. Bailey, 133 F.3d 363, 370 (5th

Cir. 1998) (“This court has held that the words ‘arising out of,’ when used within an

insurance policy, are ‘broad, general, and comprehensive terms effecting broad coverage.’

. . . The words are ‘understood to mean “originating from,” “having its origin in,” “growing

out of,” or “flowing from.”’”) (quoting Red Ball Motor Freight, Inc. v. Employers Mut. Liab.

Ins. Co. of Wis., 189 F.2d 374, 378 (5th Cir. 1951)) (emphasis added); Jarvis Christian Coll.

4
The district court wisely noted the degree to which United’s subrogation claim is attenuated
from the underlying contract. See Hamilton v. United Healthcare of La., Inc., Nos. Civ.A. 01-585,
01-650, 2001 WL 812076, at *3 (E.D. La. July 16, 2001) (“[H]ad Plaintiff not engaged in another
transaction wholly unrelated to his contract with United, i.e., obtaining his own UM policy through
another insurer, no obligation would exist.”) (emphasis added).

16
v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 197 F.3d 742, 747 n.5 (5th Cir. 1999) (same).

We have not, however, consistently used this expansive interpretation of “arising out of” in

the context of interpreting federal statutes. See Humphries v. Various Fed. USINS

Employees, 164 F.3d 936, 942-44 (5th Cir. 1999) (noting, in a case involving a federal

statute, the different interpretations given by courts to terms such as “arising from” and

“arising out of”). Therefore, a broad interpretation of “arising out of” may not be appropriate

in this context.

Indeed, the case law in this area pro vides no support for the majority opinion’s

expansive interpretation of “arising out of.” Each case in which other appellate courts found

a “debt” to exist under the FDCPA involved an obligation that arose out of a single

transaction. Thus, courts have determined that an obligation to pay home owner’s association

dues, Ladick v. Van Gemert, 146 F.3d 1205, 1207 (10th Cir. 1998); Newman v. Boehm,

Pearlstein & Bright, Ltd., 119 F.3d 477, 482 (7th Cir. 1997), an obligation to pay for water

and sewer service, Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 401 (3d Cir. 2000), an

obligation to make good on a dishonored check, Snow v. Jesse L. Riddle, P.C., 143 F.3d

1350, 1353 (10th Cir. 1998); Duffy, 133 F.3d at 1124; Charles v. Lundgren & Assoc., P.C.,

119 F.3d 739, 742 (9th Cir. 1997); Bass, 111 F.3d at 1330, and an obligation to pay back

rent, Romea v. Heiberger & Assoc., 163 F.3d 111, 119 (2d Cir. 1998), all constitute “debts”

under the FDCPA. In each case, the obligation was a promise to pay for a particular good

or service. In each case, the obligation at issue depended on a single transaction.

In cases where courts have found no “debt,” the relationship between the obligation

and the consumer transaction was more attenuated. For example, courts have held that the

17
obligation to pay property taxes does not constitute a debt for purposes of applying the

FDCPA. Pollice, 225 F.3d at 401-02; Beggs v. Rossi, 145 F.3d 511, 512-13 (2d Cir. 1998).

The obligation to pay property taxes does, in a sense, “arise out of” the purchase of a home.

Indeed, under the majority’s expansive interpretation of “arising out of,” it would be nearly

impossible to conclude otherwise. After all, the purchase of a home is a “but for” cause of

the obligation to pay property taxes. In Pollice, however, the Third Circuit found that the

obligation to pay property taxes did not arise from the purchase of property, but rather from

the “fact of ownership.” 225 F.3d at 402 (emphasis in original). The Third Circuit declined

to adopt an interpretation of “arising out of” as expansive as that of the majority in this case.

Indeed, no case appears to support the majority opinion’s broad reading of “arising out of.”5

5
Hamilton relies on Brown v. Budget Rent-A-Car Systems, Inc., 119 F.3d 922 (11th Cir.
1997), for the proposition that a “debt” under the FDCPA does not have to arise out of a single
transaction. In that case, Brown rented at truck and dolly from Budget. Id. at 923. Not long after
leaving the rental agency, Brown was in an accident. Id. Budget demanded that he pay for the repair
of the vehicle, as well as loss of use and administrative fees. Id. Brown’s insurance company paid
for the repairs, but Brown refused to pay the other charges, contending that they were covered by
a Loss Damage Waiver provision in the rental agreement. Id. After Budget hired a collection
agency, Brown sued, contending that the agency’s practices violated the FDCPA. Id. The district
court dismissed Brown’s claim, finding that the FDCPA applied only to transactions involving an
extension of credit. Id. at 923-24. The Eleventh Circuit reversed, holding that the FDCPA was not
limited to such transactions. Id. at 925. The court did not, however, hold that Brown’s obligation
in fact constituted a “debt” under the FDCPA. See Hawthorne, 140 F.3d at 1371 (“Although we
recently held [in Brown] that a ‘debt’ need not require the extension of credit . . . we have not
previously addressed the limits of the FDCPA’s definition of ‘debt.’”). Therefore, Brown provides
no support for Hamilton’s contention that a “debt” can arise out of a series of events.
It is true that the Eleventh Circuit remarked in Hawthorne that “the facts delineated in Brown
do not exclude the possibility that the obligation in that case constituted a ‘debt’ under the FDCPA.”
Hawthorne, 140 F.3d at 1373. But the court made that remark in order to distinguish Brown from
the case before it. In Hawthorne, an insurance company brought a subrogation claim against a
tortfeasor. Id. at 1369. The tortfeasor sued the debt collection agency, claiming violations of the
FDCPA. Id. The Eleventh Circuit found that the tortfeasor’s alleged obligation did not constitute to
a “debt” because it did not arise out of a consensual transaction; there was never any agreement
between the tortfeasor and the insurance company for the injured party. Id. at 1371. The court

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 The central problem with the majority’s analysis is that it oversimplifies the issue in

this case. The majority lumps the subrogation provision with the rest of the insurance

agreement, without recognizing that not all obligations under the agreement are identical for

purposes of the FDCPA. It seems beyond dispute that a consumer’s obligation to pay the

premiums on an insurance policy “arises out of” the insurance agreement, and thus constitutes

a “debt” under the FDCPA. The obligation to pay premiums fits in perfectly with the line of

cases cited above. The obligation clearly arises out of a single transaction (the insurance

agreement) and pays for a particular service (health insurance).

Subrogation by its very nature, however, cannot fit into this neat paradigm.

Subrogation never arises out of a single transaction. Subrogation is “[t]he substitution of one

person in the place of another with reference to a lawful claim[.]” BLACK’S LAW

DICTIONARY 1427 (6th ed. 1990). In essence, subrogation is an assignment. See Rohner,

Gehrig & Co. v. Capital City Bank, 655 F.2d 571, 579 (5th Cir. 1981) (observing that, under

the law of many states, “a subrogation agreement is equivalent to an assignment”). One

person (the subrogor) assigns to another person (the subrogee) a claim that the subrogor has

against a third party. In the health insurance context, this concept plays out as follows: an

insurance company promises the insured that, in case of an accident, it will pay his medical

bills. The insured no longer has to worry about recovering from a tortfeasor or any other

source because the insurance company has agreed to cover his medical costs. The insured

contrasted Brown by noting that “Brown’s obligations arose at least in part out of a business
transaction where Brown contracted for what appear to be personal services (the truck rental and the
loss damage waiver protection).” Id. at 1373. The Hawthorne court did not state that the obligation
in Brown should be considered a “debt” for purposes of the FDCPA.

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party (the subrogor) therefore assigns to the insurance company (the subrogee) his right to

recover from a tortfeasor or other source. But that subrogation claim does not arise until the

insured is actually in an accident, and has the right to receive money from the third party.

Thus, a subrogation claim cannot arise out of a single transaction between two parties.6

Nor do es a consumer, by paying a subrogation claim, receive a particular good or

service. If valid, United’s subrogation claim would serve two purposes, neither of which

directly benefits Hamilton. First, the subrogation claim would reimburse United for paying

Hamilton’s medical bills. Second, the claim would prevent Hamilton, the insured victim, from

receiving money from both United and State Farm and thereby being overcompensated for

his injuries. See Greenblatt, supra, at 1340-41 (noting that subrogation serves to reimburse

the insurance company and prevent the insured from being “unjustly enriched”).7 Thus, unlike

the “debts” discussed above))the obligations to pay homeowners’ association dues, water

and sewer bills, or rent))Hamilton’s alleged obligation does not pay for a particular good or

service. Indeed, Hamilton does not receive any direct benefit for paying a subrogation claim.8

6
Indeed, the relationship between an insured individual and an insurance company is not
typically described as a debtor-creditor relationship. Instead, the insured party (the accident victim)
is considered “the creditor” and the tortfeasor (or other party that owes the insured money) is “the
debtor.” See Jeffrey A. Greenblatt, Insurance and Subrogation: When the Pie Isn’t Big Enough,
Who Eats Last? 64 U. CHI. L. REV. 1337, 1340 (1997). The insured and the insurance company are
known as the “subrogor” and “subrogee,” respectively. Id.
7
When an insurance company collects from the tortfeasor that caused the accident,
subrogation serves a third purpose: “it places the burden of compensation on the tortfeasor and thus
deters injurious behavior.” Greenblatt, supra, at 1341. Because HRI is attempting to recover
payments made by State Farm, this third factor is not at issue in the instant case.
8
It may be that insured individuals do benefit indirectly from subrogation. Insurance
companies may be able to reduce their costs through subrogation. They might pass these savings
along to their customers in the form of lower premiums. See Greenblatt, supra, at 1354-55

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On the contrary, United’s subrogation claim, if valid, would prevent Hamilton from receiving

a “windfall” by collecting from both United and State Farm.9

This last point helps underscore why it would be inappropriate to apply the FDCPA
in this case. Hamilton’s obligation does not fit our traditional conception of “debt.” United

is not demanding money from a poor consumer who has recently been down on his luck.

United has already paid Hamilton’s medical bills. Now State Farm has given Hamilton money

to pay for essentially the same expenses. United’s subrogation claim, if valid, would simply

prevent Hamilton from being paid twice. The FDCPA was not designed to cover this case.

The Act was drafted to protect consumers who were having difficulty paying their debts. It

was not intended to protect an accident victim, who attempts to get a “windfall” by receiving

money from multiple sources.

There is no support in either text or precedent for the majority’s conclusion that an

(suggesting that insurance companies can take subrogation into account in setting their rates, and set
lower rates for customers that agree to subrogation); Steven P. Croley & Jon D. Hanson, The
Nonpecuniary Costs of Accidents: Pain-and-Suffering Damages in Tort Law, 108 HARV. L. REV.
1785, 1870 n.292 (1995) (similarly opining that insurance companies might lower rates ex ante if they
are likely to recover their costs through successful subrogation claims). In paying a subrogation
claim, however, an insured party who has been injured in an accident is not paying for this particular
benefit.
Prior to the accident, the insured party might have benefitted when other accident victims paid
subrogation claims. That would be the case if the insurance company passed off its savings (the
reduction in costs resulting from subrogation) onto its consumers in the form of lower premiums.
After the accident, however, the accident victim himself does not receive any direct benefit by paying
the subrogation claim.
9
Scholars have noted that subrogation serves an important function: by preventing an insured
party from being overcompensated for injuries suffered in an accident, it helps reduce the problem
of “moral hazard”))the possibility that an insured party might deliberately put himself at risk in order
to obtain a “windfall.” Alan O. Sykes, Subrogation and Insolvency, 30 J. LEGAL STUD. 383, 384
(2001) (observing that the “public policy against such ‘windfalls’ is an oft-stated rationale for
subrogation”).

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obligation to pay an insurance subrogation claim constitutes a “debt” for purposes of applying

the FDCPA. I, therefore, respectfully dissent.

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